There are some stocks, which are trading at their all time highs, but there are many other stocks trading at their all-time lows. If one further analyse the composition of the Sensex and Nifty then one will see that some stocks part of the Nifty or Sensex—say five years back when we were at the same level—they are no longer there in the Sensex or Nifty anymore. If one further looks at the weightage, then defensives, the weightage of defensives has gone up and that of cyclicals have come down in the last five years.
So, pharma, IT, fast moving consumer goods (FMCG) all these weights have gone up. This partly explains where we are today. Anyways, the fact is that we are where we are and currently liquidity is quite strong. But this wasn't the case just two months back. Two months back we were quite bearish, foreign institutional investors (FII) money was moving out of the county.
What really changed in the last two months?
1) The central bankers around the world surprised the markets.
2) The currency, which was close to 68 or so and people were talking about going to 70-72, stabilised. In fact, it appreciated as well. In the last two months, the FIIs have been putting in money in equities and the preceding three months they were pulling out heavily. So, this is what changed.
Also, the new RBI governor reversed the liquidity tightening measures taken by the previous governor, at least to a large extent. The marginal standing facility (MSF) rate has come down. Basically, what the US Fed and our new governor at the RBI did helped the markets.
The other thing that also help stabilise the rupee was the fact that or the expectation that our current account will improve.
The other big item was oil. Our exports have seen a rising trend and the rupee depreciation has largely helped this export trend to go up, the pace to pick up. The recent data that came on trade deficit gives a fair idea or helps build this expectation further that this current account deficit will come under control so this is another factor that helped markets.
There are other things like good monsoon and the expectation of better agricultural production. The rural economy is doing very well and the initial set of numbers that came in these ongoing results season also helped the market a bit.
The stock market seems to be building a consensus around the election outcome and it seems that or it is likely or it is expecting that the BJP led NDA may form the government next year and it perceives that it will be great for the economy and for the markets.
Disclaimer: This should not be taken as my political opinion or what I think which party can do better for this country. But the fact is that, I am just telling you what the perception of the market is. We have some state elections coming up, and if in Rajasthan BJP does extremely well or forms a government there, then this rally can get further legs. The market will get even more convinced about the outcome of the elections.
These are some of the hopes, some of the good points, taking the market where it is today. The prime driver is the liquidity that is coming from abroad.
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IIFL's Amar Ambani on what's driving the market higher
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