FOR the Indian stock markets and the country’s currency, last week was one of the most memorable in recent times, as indices soared to record highs and the rupee gained strength.

The S&P BSE Sensex breached the 30,000 level for the first time last Wednesday, while the Nifty-50 on the National Stock Exchange also topped the 9,350-mark.

The NSE Mid-cap and the Small-cap stocks have gained by 32pc and 36pc, while key sectors including realty, consumer durables, capital goods, banks and the oil and gas industry have shot up by between 25pc and 65pc. The markets are currently trading at 17.5 times the earnings for fiscal 2018.

The rupee has also gained strength — by about 6pc on a year-on-year basis against the dollar — as foreign institutional investors (FIIs) continue to pour money into the markets.

FIIs brought in about $44bn for fiscal 2016-17, a record for India. These institutions include banks, mutual funds, insurance companies, pension funds and hedge funds. Many of these investments have resulted in Indian companies seeing a significant increase in foreign holdings.

SpiceJet, the private airline, for instance, has seen its share price rise by more than 75pc following huge FII inflows. According to a recent study, about 40 stocks listed on the BSE 500 index surged by more than 50pc since the start of 2017, following FII inflows.

The rise of the Indian stock markets to record levels has coincided with similar upsurge happening in several other exchanges around the world. Last week, for instance, the Nasdaq for the first time breached the 6,000-mark. European shares are also quoting at 20-month highs and stock markets in Asia are also roaring.

The rupee has also gained strength — by about 6pc on a year-on-year basis against the dollar — as foreign institutional investors continue to pour money into

the markets

Analysts point out that many central banks around the globe have been investing heavily into Asian stocks, leading to the phenomenal increase in stock prices. A recent note from Bank of America-Merrill Lynch described the surge as a consequence of a ‘liquidity supernova’,

“If the momentum continues for the entire year, it will amount to the largest central bank buying on record,” said the note.

Adding to the bullishness in the Indian stock markets is the forecast by the Indian Meteorological Bureau of another round of good monsoon this year. The central government has also promised that general sales tax (GST) will be rolled-out most likely by July.

Another key factor that is boosting stock indices in the country is the outstanding success of the Bharatiya Janata Party (BJP) in several recent state elections — including Uttar Pradesh, the country’s largest state. Last week, the party also came out with flying colours in the Delhi civic polls.

Of course, many analysts are also sounding caution following this upsurge. “We are unable to fathom the rapid changes in the price of stocks without any major changes in their fundamentals,” remarks Sanjeev Prasad, executive director and co-head, Kotak Institutional Equities.

“It seems to us that the sole investment thesis in some cases is liquidity, which is quite bizarre since active investors should be deciding on the fundamental value of stocks rather than leaving it to a nebulous issue such as liquidity.”

But Harsha Upadhyaya, CIO (equity), Kotak Mutual Fund, said his firm continued to remain positive on the market. “Further upside, however, will be dependent on earnings season and liquidity flow.”Vaibhav Agrawal, research head, Angel Broking, said the market would remain strong, especially with the implementation of GST over the next few months and the expectation of normal rains.

INTERESTINGLY, the market push has resulted in India’s emergence as a major capital market in the world. With the Sensex breaching the 30,000-mark last week, India’s market capitalisation was rapidly speeding towards the $2tr-mark.

In dollar terms, the Sensex has gained by about 20pc in the first four months of 2017, making it the best-performing index in the world. In rupee terms, it has grown by a little more than 13pc. Market capitalisation in India (currently around $1.94tr) is about 82pc of the national GDP.

There are only 16 stock exchanges around the globe that have a market cap of more than $1tr. They include the BSE (at 11th rank) and the NSE (12th rank). But only eight countries have a market value of more than $2tr.

But despite this upsurge in India’s ranking on the global stock markets, India’s free-float market cap suffers because of the huge holdings by promoters — both private players and government departments.

Free-float market cap indicates the market value of shares that are freely traded. Shares held by promoters — private or government — are not freely available for trading.

According to data, the free-float market of BSE 500 companies is just a little above 45pc, as against nearly 90pc in Brazil and more than 65pc in Hong Kong.

With robust macro-economic indicators and a strong flow of funds from both domestic and foreign institutions, the current buoyancy in markets is expected to continue, analysts say.

However, revival in corporate earnings would be a key domestic trigger that would determine the market movement. On the global front, political developments in Europe along with the geopolitical situation in Syria would be key factors.

Last week, after Reliance Industries announced better-than-expected fourth-quarter net profits, its shares rose on the stock exchanges and the company reclaimed its top position as the most-valued stock in the country.

Reliance Industries had been toppled as the most-valued company by Tata Consultancy Services (TCS) about four years ago. TCS retained its top spot since 2013, but lower growth forecasts in recent years have seen its stock price sliding.

And with Reliance — which is a major player in the refining business — saw profits zoom, its share prices have also vaulted in recent days. In 2017, Reliance shares have gained by more than 30pc, whereas TCS has lost more than 1.5pc.

Published in Dawn, The Business and Finance Weekly, May 1st, 2017