The Nifty chart rallied from about 6500 in May 2014 to 8100 in early September, 2014 has largely been on the back of the stable government that was voted to power in May, 2014. The 10 years that preceded the current euphoria were largely agonizing with a series of scams hitting the government, those governing the nation focusing more on personal objectives rather than the national objectives and delivering a cloud of uncertainty rather than clear directions that drive the markets.
Read more: Nifty snaps three days losing streak; ends above 8,100 mark
We can sum up all these as ‘negative sentiments’. This is perhaps yet another instance when ‘sentiments’ rather than the fundamental strengths drive the stock market indices.
There are at least 5 major events that have helped the nifty ride past the 8000 mark and continue on its northbound journey.
1. Stable Government
A stable government at the center contributes significantly to the stability of the national economy. The present NDA government did not tinker significantly with the ‘vote on account’ presented by the outgoing UPA II government. Therefore, the budget by itself did not lend a leg to the markets.
2. Stable Rupee
The Reserve Bank of India has successfully kept the rupee dollar parity pegged at Rs.60 to a dollar with minor variations contained within a rupee. Currency stability is a huge factor that impacts the market.
Foreign institutional investors play a key role in providing direction to the market. It has been several years since India had a majority government at the center. Today, the government has the numbers on its side to take helpful and strong decisions. The confidence of FIIs has grown manifold in recent months and the sovereign rating may also go up any time soon. Little wonder that the nifty chart is consistently on a one way march.
4. Narrowing Current Account Deficit
During the April – June quarter, gold imports dipped significantly by about 58% to $7 billion from about $16.5 billion during the same period in the previous year . Consequently, the current account deficit itself dropped to 1.7% of GDP. Unbridled gold imports during 2012-13 had taken the CAD to $87.8 billion or 4.8% of GDP. The narrowing CAD in turn boosts the confidence of the foreign as well as the domestic institutional investors. With more money coming in the stock market indices can only be unidirectional – northbound.
The GDP is a comprehensive indicator of national financial performance. The Indian GDP stood at 5.7% for the quarter ending June, 2014. This was a pleasant surprise even for economic pundits who had predicted a lower figure. This is yet another shot in the arm for the stock market indices.
Read More - GDP to improve to 5.2% in 2014: Moody’s
While all these factors augur well for the Indian stock market indices and the nifty chart, investors are better off playing the markets with cautious optimism. The undercurrents in the global markets are not strong enough to sustain the present euphoria for long. Fundamental factors like earnings, tangible financial initiatives from the government, and a near normal monsoon are among the major concerns.
Do you have any other factor in mind? Do let us know through your comments.