Five reasons why market may hit all-time high by December-end

Market may have cooled off a little after a strong rally witnessed in early September, the benchmark indices look all set to hit fresh all-time highs by December-end. Some experts, in fact, believe them to touch life-time highs by Diwali itself riding on consumption story during festive season of October.

"Market is nicely placed for moving up and stay strong as government has been quite active with policy implementation and taking measures to revamp the weak sectors so far, for example, foreign direct investment (FDI) in aviation, merger plans in the public sector banks (PSB) space, and roll out of Goods and Services Tax (GST). Overall, there is nothing contrary to the present bullish view," said Rohit Gadia, Founder & CEO, CapitalVia Global Research.

The expert expects the market to hit fresh highs by Diwali this year.

However, Mustafa Nadeem, CEO, Epic Research is a bit conservative with Nifty hitting 9,000 mark in the October. He expects indices to log life-time highs by mid-November to December.

Below are five factors why market may hit all-time high by December-end, if not by Diwali:

1) F&O positions

The ongoing forward market positions, though, indicate rangebound trades ahead on the back of profit booking, Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments believes such  consolidations are good for the long term bull run.
 
"Nifty Future for September series is trading at a premium of 25 points which is not too high considering the recent rally, but November is likely to take indices to a newer high," said Sudhanshu.

V K Vijayakumar, Chief Investment Strategist, Geojit BNP Paribas also said ongoing forward positions are suggesting underlying  strength in the market but he believes a period of consolidation is likely, going forward.

"FIIs continue to be heavy buyers in index futures and stock futures. Also, there is huge put selling at 8,700 and 8,800 levels which indicate that the downside is protected," said Vijayakumar.  

2) Positive macro indicators

Though retail inflation in July surged sharply to 6.1 per cent, it eased in August to come in at 5.05 per cent thanks to sharp correction in food inflation, which indicates Reserve Bank of India (RBI) may consider or at least hint at reducing interest rates in the upcoming policy review on October 04.

Experts believe, GDP growth may have faltered in the June quarter on account of poor show by agriculture, mining and construction, it will improve going forward thanks to good monsoon. Mining will also improve the prospects as material prices have improved significantly over the last few months. Hence, there are no indications of an imminent slowdown in the economy.

3) FIIs bullish

For the foreign investors, the options to invest in equities are limited . At a time when most economies in the world are showing signs of deflation or struggling to grow GDP beyond 1 per cent, Indian economy is showing resilience.

"The primary reason why FIIs are upbeat on India is because among all major economies in the world, only India and the US are not showing any signs of deflationary trend. Whereas most other economies have poor GDP growth, or strong deflationary signs in terms of very low inflation (and/or negative yields) or over-capacities," said G Chokkalingam, Founder, Equinomics Research & Advisory.

4) Fed unlikely to raise rates

The consensus on the Street is that US Federal Reserve Chair Janet Yellen will stay put in the September policy as weak jobs, manufacturing and retail sales data reduced expectations of an interest rate increase in US. Rates are unlikely to go up even in October as historically Fed refrains from changing policy  tact ahead of Presidential election. Experts believe, even if Fed raises rates in December, it wouldn't impact FII inflows, as other central banks such as Bank of Japan and European Central Banks are likely to continue with their easy money policies.  

5) Earnings revival

The upcoming quarters are expected to perform better thanks to a slew of reforms that government initiated recently.

"Good monsoon, robust fuel consumption, robust excise duty collections, strong FDI inflows, aviation traffic double digit for a 16th month in a row, etc show signs of aggregate demand in the system shifting upward and hence, giving lot of hope on possible further growth in corporate earnings in the next two quarters," said Chokkalingam. He expects the benchmark indices to hit the life-time highs by end of December 2016.  

Brokerage ICICI Securities also believes the current rally in the market has support of stable earnings.
 
"Sharp correction is unlikely in Indian equities as unlike the rally at the beginning of year 2015, which was at odds with the continued downgrades in earnings; the current rally has support of stable earnings so far in CY16," said the brokerage in a research report.