Indian stocks scaled new heights with the Nifty closing above 18,000 for the first time ever, shrugging off nervous sentiment in Asian markets, which were weighed down by worries about the effects of rising energy prices on inflation and recovery.
With the dollar strengthening in anticipation of liquidity tapering by the US Federal Reserve, the near-term outlook for emerging markets has turned uncertain. But local equities could remain relatively resilient thanks to the unabated flows from domestic investors, undaunted by shrinking risk tolerance globally.
The Nifty gained169.80 points, or 0.94%, to close at a record18,161.75. It hit an all-time high of 18,197.80 earlier in the day. The Sensex rose 452.74 points, or 0.75%, to an all-time closing high of 60,737.05. The Nifty, which has been struggling to break past the 18,000-mark despite the momentum being in favour of bulls, had crossed the level briefly on Monday. Now with the index closing above this psychological level, analysts are targeting 18,600.
Call writers bet on limited upside in an index or stock. The MSCI index covering all Asia-Pacific markets, excluding Japan, was down 1% on Wednesday as record power prices driven by supply shortages in Asia and Europe have pushed investors to the edge. The energy crisis has hit various Indian states too but the local stock market has remained calm.
Foreign portfolio investors turned net buyers on Wednesday, pumping in ₹937 crore after remaining sellers for the previous five sessions. Domestic institutions, which sold stocks worth ₹432 crore on Wednesday, too have sold on five out of the previous six days. Brokers said direct investment in equities from individual investors have helped absorb a chunk of the selling by institutions.
The rush of domestic flows has helped Indian stocks outperform their peers recently, said brokers. Since September 1, the Nifty has gained 5.36%, while the MSCI Emerging Markets index has dropped 4.5%. The Indian benchmark has gained 2.6% in October so far against the 0.6% rise in the MSCI EM index.
The dollar has been strengthening in the past few weeks as inflationary pressures have lifted bond yields. With the spike in energy prices seen fuelling inflationary pressures further, the market is expecting that the US Fed will move faster toward tapering asset purchases, pushing up yields and the dollar. An advancing US currency is usually bad news for emerging markets stocks including India as a weaker rupee erodes foreigners’ domestic stock holdings. The rupee fell 0.19% to close at 75.37 on Wednesday. Expectations that the Fed will start withdrawing its monthly bond purchases as early as November have heightened after three senior US Fed officials on Tuesday said the economy has healed enough for the central bank to begin to withdraw the bond-buying programme.