MUMBAI: Brokers expect the domestic stock market to begin the week firmly, as renewed signs of a recovery in the US economy are likely to lift the mood in world markets. US stocks rose on Friday, posting their fourth consecutive weekly gain, as investors were heartened by improving demand for capital goods, technology products and consumer items.
Back home, brokers warned that any uptrend could be accompanied by sharp swings in share prices, as is usually the case in the week when equity derivatives contracts expire. Futures and options contracts for the current month expire on Thursday.
Benchmark indices have risen nearly 12% this month alone, raising concerns that the market may be overheating, because of excess liquidity. Foreign institutional investors (FIIs) have poured over $16 billion into Indian shares in 2010 — over $4 billion in September alone — driving the Sensex and Nifty above the psychological levels of 20000 and 6000, respectively.
The BSE’s Sensex ended last week at a 32-month closing high of 20045 and the NSE’s Nifty closed at 6018. At roughly 19 times estimated one-year forward earnings, the Indian market appears expensive relative to its historical average, even as the outlook on the economy and corporate earnings is robust.
“The momentum has been very strong. So, even if valuations may seem expensive, the underlying positive tone will help the market make new highs,” said Bhavin Desai, manager-derivatives, Motilal Oswal Financial Services. “The Nifty’s expiry rise to around 6100 by Thursday at derivatives expiry, but the choppy situation will increase. So, traders should be cautious,” added Mr Desai.
However, investors who are cautious at current levels have increased their exposure to defensive sectors like pharma and fast-moving consumer goods (FMCG), as these stocks traditionally fall to a lesser extent during a market correction. Shares of FMCG behemoth Hindustan Unilever (HUL) rose to a 10-year high on Friday.
“Investors, who had entered the market at lower levels, have been booking profits and reinvesting them in these stocks,” said Manish Boricha, vice-president & business head, PMS & HNI sales, Sharekhan, referring to the interest in defensive stocks. “These will remain the flavour of the market near term,” he added.
On the global front, investors will keenly observe the manufacturing and personal income data, along with consumer-spending data for August, which is expected to show moderate gains.
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