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Nifty’s journey to all-time high in 5 charts

LiveMint logoLiveMint 26-04-2017 Ami Shah

On Tuesday, National Stock Exchanges’s (NSE) Nifty recorded an all-time high and closed above the psychologically important 9,300-mark for the first time ever.

The market, which saw a decline late last year—courtesy Prime Minister Narendra Modi’s demonetisation move and Donald Trump’s US election victory—has logged 5% gains since its previous peak seen on 9 September. Valuations too are only a bit higher since then, as analysts cut earnings estimates following the demonetisation exercise, as the consumption story was temporarily derailed.

But things are looking up now, with better-than-expected quarterly results and the forecast of a normal monsoon boosting investor sentiments.

Here is a look at Nifty’s journey since its previous peak on 9 September, in five charts.

Since Nifty’s previous peak in September 2016, unexpected events—demonetisation and Donald Trump’s US election win—derailed the sentiment for the market. However, reasonable valuations attracted domestic investors who supported the bourse through early 2017.

The BJP’s sweep in Uttar Pradesh elections in March raised investors’ hopes of long-term stability in the world’s largest democracy. The victory of centrist politics in the first round of French Elections earlier this week whetted global risk appetite, triggering a rally in equity markets worldwide. This rally propelled Nifty to a record high.

In the journey from its previous peak in September to Tuesday’s new high, Nifty lagged most of its global peers, barring China’s Shanghai Composite Index. While Nifty has risen 5% since then, its counterparts in Brazil and Russia have posted 11% and 13.6% gains, respectively.

India even underperformed the broader MSCI EM index, which logged 6.8% gains in the period.

The rally was subdued as the Indian markets faltered in November, due to the demonetisation announcement that temporarily hit the consumption story in Asia’s third-largest economy.

Energy companies have been Nifty’s top gainers since September as they posted better corporate earnings on the back of improving refining margins.

Pharmaceutical companies have been the prominent laggards since then as persistent regulatory hurdles—coupled with pricing pressures in the US—bothered drugmakers. The trend gains prominence because the US market accounts for at least half of the revenue of most leading pharmaceutical firms.

Nifty may have delivered gains of 5% since its previous peak on 9 September, current valuations are only a tad above. Valuations slumped to 14.85 FY17 earings in late December, erasing the gains from a good monsoon and the implementation of the Seventh Pay Commission.

But the December quarter results, though subdued, were better than analyst expectations. The BJP’s win in Uttar Pradesh elections and clarity on GST implementation in early 2017 simply boosted the market sentiment—sending valuations higher.

The holdings of foreign institutional investors (FIIs) in Nifty firms came down by 74 basis points to 24.55% at the end of the March quarter from 25.69% in the quarter ended 30 June 2016. This erosion can partially be attributed to huge interest from domestic institutional investors (DIIs), particularly mutual funds, who raised their stakes in Nifty companies to 5.01% from 4.47% earlier.

One basis point is one-hundredth of a percentage point.

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