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From 30k to 30k: The see-saw ride of Sensex

With the Indian stock market’s benchmark index Sensex breaching the crucial psychological level of 30,000 after a long gap of two years, it would be interesting to cruise through the eventful journey and evaluate if the momentum would be sustainable.

First stint of Sensex with 30k in March 2015

This is the second such instance in a little over two years when the index breached the psychological mark of 30,000, as the Sensex had last hit a high of 30,024.74 on 4th March 2015. A surprise rate cut by RBI before the scheduled meeting in April 2015 had powered the Sensex to cross the historic 30,000 mark as the markets saw this as an indication of RBI’s confidence in the government’s commitment to medium term fiscal consolidation plan.

 

Robust FIIs, recovering oil & gas sector saw Sensex regaining magical 30k mark in 2017

The 30-share index hit a high of 30,007.48 on April 5, 2017 primarily driven by a remarkable revival in foreign fund inflows. Prior to this, FIIs remained on sidelines as demonetization in November last year raised concerns over India’s growth prospects. However, the improved macroeconomic picture, which was well reflected in the sharp decline in the current account deficit (CAD), boosted the investors ‘confidence. Also, low commodity prices worldwide and falling margins have contributed to the current rally in the markets as they have led to a recovery in metals, banks, and oil and gas sectors. These sectors had exhibited poor performance between FY14 and FY16.

Top Sectoral Gainers BSE

Topsy-turvy journey for Sensex in past 2 years

The journey of Sensex from 30k to 30k hasn’t been a smooth one. From the government facing massive challenges in the Rajya Sabha to pass one of the most significant economic reforms, to dismal corporate earnings, many factors played a spoilsport and saw the benchmark index crashing to a low of 22,494.61 on February 29, 2016. There were many other show spoilers in the form of capital outflows, unfavourable comments from the US Fed, global weakness, falling crude prices, slipping exports, weak rupee and the ever rising bad loans, that completely wreaked havoc on D-street.

But the markets witnessed an impressive rebound thereafter as the Government’s emphasis on sustaining fiscal health and introducing a slew of reforms for the economy coupled with its landslide victory in key assembly elections bolstered investors’ confidence thereby aiding a whopping 33 per cent surge in Sensex in a little more than a year.

Factors behind a rejuvenated market

Numerous positive factors powered sanguinity among the investors which led to a renewed upsurge in the market. The Centre’s perseverance in clearing barriers for the likely execution of the biggest indirect tax reform, the GST starting July 1, was well acknowledged by the investor community. Also, a budget focusing on rural growth this year, coupled with robust farm assistance and steps to resurrect consumption-led growth gave required push to the market.

Road ahead bumpy yet promising

 Uncertainties would play their role but the conducive macro-economic environment hints towards healthy markets. The monetary and fiscal metrics remain promising and the Modi-led BJP Government’s strong performance in the recent polls has raised hopes of more economic reforms. The economic activities are expected to gather pace this year making India an attractive investment destination.

However, any disappointment in upcoming corporate earnings season could certainly act as a hurdle in the market rally. Further, global factors including policies approved by the US President Donald Trump, US bombing of Syria and political developments in Europe, as well as a possible referendum by Italy to decide on the fate of its membership in the European Union, could see some correction from the current levels. But the current economic scenario suggests that the strong fundamentals would take the markets to new heights.

 

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