D-Street bulls party as Sensex breaches 85K and Nifty tops 26K for the first time

India’s key stock indices hit all-time intraday highs on Tuesday, with the Nifty briefly crossing 26,000 and the Sensex breaching the 85,000 mark for the first time in a choppy trading session. The bullish momentum in the market may resume if the Nifty closes above 26,000 though there are concerns that equities may be overbought after the recent surge.

The NSE Nifty ended flat at 25,940.4, after touching 26,011.55. The BSE Sensex went to 85,163.23, before closing at 84,914, almost unchanged.

Sentiment Booster

Both indices closed at records for two straight days until Monday, led by the US Federal Reserve’s 50-basis-point rate cut on Thursday. “The market is going upward as it is hoping that the rate cuts in the US as well as other countries could lead to a revival in global growth,” said George Thomas, fund manager, equity, Quantum AMC. “However, we remain slightly cautious about the outlook from now on as valuations are on a higher side, and we are currently holding 15-16% cash across our funds, as many stocks have crossed our fair value estimates.”Sentiment in Asia got a boost after the People’s Bank of China on Tuesday unveiled measures to revive the world’s second largest economy. China’s central bank, among other moves, cut the reserve requirement ratio, the amount of cash banks must hold in reserve, by 50 basis points.

In response, Chinese stocks advanced 4.2% and Hong Kong rose 4.1%. South Korea gained 1.1% and Taiwan rose 0.7%.

The pan-Europe index Stoxx 600 ended up 0.65%. In the US, Wall Street’s main indices were up 0.02-0.42% at the time of going to press.

In India, analysts do not see a reversal as long as the Nifty goes past 26,000. “The next hurdle for Nifty is now placed at 26,000 levels as it has a strong writing in calls,” said Gaurav Bissa, vice president at InCred Equities. “A close above this level tomorrow can lead to a further short covering, which can propel the index towards 26,200-26,300 levels in a jiffy.”

When a trader writes or sells a call option of an index or a stock, it means she does not expect the security to cross that level.

Foreign portfolio investors (FPIs) sold shares worth a net Rs 2,784 crore on Tuesday. Domestic institutions were buyers to the tune of Rs 3,868 crore.

Overseas flows should continue in India as rate cuts take place, said Thomas. “But I will monitor if China growth picks up, because that could lead to some pressure on FII (foreign institutional investor) flows,” he said.

Sparked by the Chinese central bank’s stimulus package, metal stocks were the top gainers. National Aluminium Co. (Nalco), Tata Steel and Hindalco were up 4-7% at close. The Nifty Metal index was up 3% on Tuesday.

“It has witnessed a small consolidation breakout today which can push it by another 3-5% in the short term,” said Bissa.

Nifty’s Volatility Index or VIX-the market’s fear gauge-fell 3.1% to 13.4, suggesting traders do not see any near-term risks in the market.

The Nifty Midcap 150 gained 0.3% and the Nifty Small-cap 250 fell 0.2%. Of the 4,076 stocks traded on the BSE, 1,878 advanced and 2,112 declined.