Strong markets may lead Nifty past 18k mark

Mumbai: The renewed strength in the equity market, which got a boost from the Reserve Bank of India (RBI) persisting with its accommodative monetary policy on Friday, could push the Nifty past the 18,000-mark in the days ahead.

While investors will shift focus to September quarter earnings season starting this week, analysts warn that disappointments could take the wind out of their sails as stronger profits are seen as imperative to justify elevated share valuations.

On Friday, the Sensex reclaimed the 60,000-mark it had conquered for the first time in September and the Nifty ended 0.6% shy of 18,000 – though the market gave up a portion of early gains sparked by the Indian central bank’s continued monetary support.

Both indices had gained 2% last week, shrugging off global concerns over the likelihood of persistent high inflation, which is putting upward pressure on US bond yields.

“These concerns won’t have a bearing on direction,” said Shankar Sharma, cofounder, First Global. “Markets will continue to head higher and remain positive because the overall policy stance of RBI is accommodative and, as long as inflation remains where it is, the market will remain strong.”


Some Worries

Investors will also assess the disappointing US jobs report released on Friday as the Federal Reserve prepares to slow its $120 billion-per-month bond-buying programme. The weaker jobs report may not deter the US central bank from delaying its tapering plans, but it could ease pressure to increase interest rates soon.

Infosys, Wipro, HCL Technologies, HDFC Bank and Avenue Supermarts are among the companies scheduled to announce their results this week.

ICICI Securities chief investment officer Piyush Garg said the Nifty has outperformed in the past two months but the market has factored in expectations from corporate earnings. “If these expectations are not met, then these gains could reverse,” said Garg.

The Nifty is trading at a near-record, price-to-earnings (PE) ratio of 22.4 times on a one-year forward basis, which is 43% above the 16-year average.

Garg pointed out that coal shortages being faced by large nations could become a worry for markets. These factors could limit the market upside, he said. Oil prices last week crossed $80 a barrel to a seven-year high, tracking a rally in commodities such as coal and natural gas in the wake of an energy crunch that has swept Asia and Europe. Some analysts fear continued strength in energy prices could push up inflationary pressures further. “The Nifty could hit 18,000 but I’m not sure it will sustain much beyond that,” said Garg.

The Sensex and Nifty have gained over 10% in the past two months amid a decline in Covid-19 cases and recovery picking up pace. The Sensex had touched an all-time high of 60,412.32 on September 27, and the Nifty reached 17,947.65 on September 24.

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