Easy liquidity may continue to push stock prices higher

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Easy liquidity may continue to push stock prices higher
This week Indian markets hit a high last seen in November 2010, led by a rally in banking and IT stocks.

In fact, at one point this week, the Sensex was just 200 points shy of hitting a new record high. Foreign funds are pumping money into the markets and data released by the National Stock Exchange shows that they were net buyers for every single day in the last 2 weeks in the cash segment.

On Friday they again net bought in the cash segment to the tune of Rs 626 crores. Domestic funds on the other hand have been consistently selling stocks as can be gauged from the NSE data.

Markets will continue to rally as long as foreign funds keep buying into the Indian markets. And, there is no immediate reason to believe they will stop. Weak economic data from the US means the Federal Reserve would continue to buy bonds and pump liquidity into the US and much of this will find way into stock markets around the globe.

The S&P 500 is breaking new record each day and so is the case with the German DAX. Easy global liquidity is driving stock prices from Australia to Asia and Europe.

As long as this cheap money continues markets in India would also rally. Talking of expensive valuations and stretched multiples is a futile exercise. Fundamentals have gone for a toss as liquidity drives stock prices higher.

As long as the US Federal Reserve continues unleashing its bond buying porgramme, stocks markets are unlikely to fall. So, at the moment the investment mantra seems to be "make hey while the sun shines".

The Monetary Policy Review is scheduled for Oct 29 and even a repo rate hike may not have any significant downside risks for the Indian market.


Story first published: Saturday, October 26, 2013, 10:29 [IST]
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