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Sensex shoots up 8% in 8 sessions on liquidity glut

Indian markets recorded new highs for a fifth straight day on Tuesday, led by strong capital inflows from global investors and optimism created by US President Barack Obama’s second visit to the country. India and the US have pledged to deepen their ties and boost investments. Financial and capital goods stocks have led the gains as investors bet an increase in trade between the two major economies will spur more demand.

The benchmark Sensex ended 292 points, or 1 per cent, higher on Tuesday at 29,571.04, while the 50-share NSE Nifty gained 75 points, or 0.85 per cent, to 8,910.5.

Indian markets gained despite weakness in the global markets as investors turned cautious over Greek concerns and the start of the two-day policy meeting of the US Federal Reserve. Wall Street opened weak and fell sharply in early trading after quarterly results declared by Microsoft and Caterpillar disappointed investors.

In one of the largest unbroken gaining streaks, the 30-share Sensex has added 2,224 points, or 8.1 per cent, in eight straight sessions, beginning January 15 when the Reserve Bank of India (RBI) unexpectedly eased the interest rate by 25 basis points. Foreign institutional investors, the largest institutional shareholders in the Indian market, have poured in over $ 1.5 billion into Indian stocks in the eight sessions. Investor wealth has risen by Rs 5.3 lakh crore over these eight sessions.

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The 1-trillion-euro quantitative easing programme announced by the European Central Bank (ECB) and forecasts by the International Monetary Fund (IMF) that India will become the fastest growing major economy in the world – outpacing China – by 2016 have boosted prospects for Indian markets, analysts say.

“The Obama visit has buoyed the market. It has added to the confidence in this pragmatic and reform-oriented government,” said Nirmal Jain, founder and chairman, India Infoline. “Easy global liquidity augurs well for emerging markets like India.” Experts are hoping FII flows into the Indian markets will continue to remain robust due to the financial stimulus announced by European and Japanese central banks even as the US Fed is set to raise interest rates.

“While the consensus is on the Fed raising its funds rate around mid-2015, the greater impact of this on emerging markets will depend on how frequent the increases are, and how surprised they leave markets. Contrary to common perception, Fed actions haven’t always been fully priced in,” said Crisil Research in a report.

The rating agency believes India is better poised this time around to withstand the likely turbulence created by a Fed rate hike.

Global markets are betting that the US central bank will be patient in tightening interest rates amid an uncertain global outlook. Analysts said any surprises in Fed’s rate cutting time-table could prove to be a risk for the financial markets. Indian markets also remain vulnerable to negative news flows from Greece or Russia, whose sovereign credit rating was cut to ‘junk’ by S&P on Tuesday.

Yogesh Radke, head of quantitative research, Edelweiss Capital, expects the market to face resistance at current levels following sharp gains. “Indian markets have seen a sharp upmove. The correction can also be sharp if there is any disappointment from the global market,” he said.

Blue-chip index stocks including HDFC, Larsen and Toubro and Axis Bank have each gained over 15 per cent in the past eight sessions.

The market’s current gaining streak, where it has gained over 8 per cent, is the best since September 2013 when it had gained nearly 10 per cent following steps taken by the RBI to stem the fall in the domestic currency.

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