Mumbai : India’s equity benchmarks surged to a nine-month high on Thursday, led by bank stocks, as easing tensions in the West Asia revived investor sentiment, triggering liquidation of bearish bets amid expiry of June derivative contracts. The NSE Nifty rose 304.25 points or 1.2% to close at 25,549 while the BSE Sensex rose 1,000.36 points or 1.2% to end the day at 83,755.87. It marked the highest closing levels of both indices since last October when the equity markets had made a sharp run-up.

The rally later started to reverse on worries about pressure on corporate profits and frothy share valuations.

“The Nifty’s breakout from a 30-day consolidation signals strong momentum driven by easing geopolitical tensions, falling crude prices, and sustained domestic institutional buying,” said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services. “We saw short covering from traders, which triggered the sharp up move today.”

Fear Gauge Falls 2.9%
Bank shares led the run-up, with the Bank Nifty index ending at record levels.

Israel and Iran announced a ceasefire after a 12-day conflict, but oil prices remained sticky due to concerns that the end of hostilities might be temporary. Brent crude futures rose 0.7% to $68.16 a barrel.

The dollar index fell to a three-year low on Thursday, adding to the optimism. A weaker US currency typically benefits overseas markets by driving fund flows into regions with appreciating currencies.Elsewhere in Asia, markets were mixed with Japan rallying 1.65%, and Taiwan advancing 0.3%. China declined 0.2%, Hong Kong fell 0.6%, and South Korea dropped 0.9%. The pan-Europe index Stoxx 600 was trading flat at the time of going to print.At home, Nifty’s Volatility Index or VIX — popularly known as the fear gauge of the market — fell 2.9% to 12.6 levels, signalling traders see lesser risks in the near term. The index has declined over 30% in the past month.

The current bullish momentum can drive the Nifty to 25,750, and even above the current all-time high of 26,277, said Taparia. The Nifty made a closing high of 26,216.05 on September 26.

Siddarth Bhamre, head of institutional research at Asit C Mehta said uninterrupted flow of liquidity is driving the markets higher.
“Markets have been rising despite ongoing uncertainty, as negative news is quickly priced in, and steady liquidity and flows continue to drive gains,” said Bhamre.

Largecaps a safe bet
Foreign portfolio investors net bought shares worth Rs 12,594 crore on Thursday. Domestic institutions were sellers to the tune of Rs 195 crore. DIIs have net bought shares worth Rs 69,765.4 crore and FPIs have been buyers of shares worth Rs 6,923.5 crore in June so far.
The broader market underperformed the large-caps, with the Nifty Midcap 150 gaining 0.5% and Nifty Small-cap 250 rising 0.3%. Out of the total 4,153 stocks traded on the BSE, 2,043 advanced and 1,961 declined at close.

Bhamre recommended caution and sticking to large-cap stocks.

“Investors must stay invested in reasonably valued large-cap stocks, with a focus on banking, life insurance, and select cement companies, which offer a combination of growth and reasonable valuation,” he said.