It seems the markets were waiting for the ‘Budget’ moment. The euphoria on the Street was crazy after the finance minister unveiled massive fiscal sops, to say the least. Big bulls could not hold back their exuberance on television. Indian benchmark indices were in a sea of green as shorts got squeezed, and drove the markets even higher. It saw the Nifty 50 gain 9.5% in the past week
It was the Bank Nifty that was the cynosure of all eyes as it sprinted up 16.6% with the finance minister announcing ground-breaking reforms such as privatisation of two PSU banks. This was followed well by the Reserve Bank of India. The apex bank noted that the economic recovery is strong and that it will continue to with liquidity support.
Amidst all this, the country’s largest bank unveiled third-quarter numbers that took the Street by a huge surprise. Brokerages scrambled to raise target prices for the State Bank of India stock. CLSA, for instance, upped its target price to Rs 560 from Rs 385, while Jefferies India bumped it up to Rs 480 from Rs 340.
Cyclicals are an obvious beneficiary of the Indian economic revival, and banks are one of them. If the fiscal stimulus is anything to go by, it can boost demand for loans and lead to a capital investment phase over the next few years.
But none of this, unfortunately, changes the fact that the markets are sharply higher than when the year began, and that apart from earnings there are no other major triggers for the markets. Sure, we are seeing fantastic earnings growth, thanks to the cost-savings and lower base of last year.
The fact also remains that the base for the next year could turn higher, which means analysts could forecast slower growth in earnings next year.
One must also remember that the markets are becoming proverbially ‘heavier at the top.’ Consider investors to be hiking up the mountainside. As one goes higher up, it becomes more and more difficult climb. Hikers spend more energy climbing higher and the rate of increase also slows down. Something similar may be happening to the markets right now.
Hence, at higher levels markets will require more liquidity to take it even higher. So watch for fatigue to set in at higher levels.
