High-flying Indian stocks eye new milestones

Indian stock benchmarks have surged to multiple new record highs since a near $400 billion wipeout on the election results day.

The recovery from the over 5 per cent fall on June 4 in under three sessions is the fastest rate in over a decade.

Both benchmark indices are eyeing new milestones after breaching year-end targets comfortably to new all-time highs on Tuesday.

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The market capitalization of all the listed stocks on the blue-chip BSE Sensex index is about $5.2 trillion.

The country's stock market is now part of the exclusive club of the United States, China, Japan, and Hong Kong.

However, it took India just about six months to add the latest 1 trillion dollars to the market value of companies listed on its exchanges.

More importantly, the fact that millions of young Indians have flocked to equities investing is a defining characteristic of gains in the last several years.

New Milestones?

For now, the bull run has the Sensex eyeing new milestones, with the latest predictions calling for 1,00,000 points for the index by the end of next year.

The broader NSE Nifty is not too far behind, with the index approaching the 25,000 level.

After the 24,000 mark was breached, analysts have scurried to reassess their year-end targets for the index.

Since June 7, when the current trend of new record highs started after the dramatic fall on the vote count day, the Nifty index has hit a record in each trading session, barring just one day.

Let's put that into context - record milestones set in 21 of 22 trading sessions since June 7.

Tuesday marked a fresh all-time high for both benchmark indices.

The Nifty hit 24,443.6 points, and the Sensex surged to 80,397.17 before they closed at new record highs.

The Sensex has jumped over 8,000 points since the big loss on June 4.

Budget to drive markets further?

New milestones are being set on the back of expectations of a pro-growth and reforms-based budget.

However, the pace of the run-up also risks a stronger correction if the new coalition government fails to manage expectations and justify budget policies to the wider public.

The real question in the current bull run is - how high can flying Indian stocks rise?

Broadly, the ever-bullish stock analysts predict the current surge to continue, albeit at a marginal pace.

Still, when looking at valuations, the stock market froth is already to the brim, and unless there is a positive trigger from the budget, the rally looks extended.

However, the volume data suggests an increasing appetite for Indian stocks despite the record highs.

Foreign inflows to rise?

The one thing that sets the current rally apart from previous ones is the low activity from foreign investors, which is a good sign.

When and if foreign capital starts to flow significantly, the rally will get another leg up.

The broad expectation is that foreign inflows will rise after the budget announcement on July 23.

If the government is able to manage the thin line between expansive spending and fiscal discipline, foreign investors will flock to Indian markets.