India : Sensex ends 157 pts down, but bears wary of helicopter money

MUMBAI : The Sensex continued to struggle around the 28,000 mark to finish lower on Friday even as benchmark indices gained on the week. The weakness in Indian equities was in line with the subdued mood in Asian markets.The Sensex closed at 28,051.86, down 156.76 points over its previous close, and the Nifty shed 27.80 points to close at 8,638.50. For the week, the Sensex rose 0.9 percent, and the Nifty by 1.1 percent.

About 1221 shares have advanced, 1462 shares declined, and 209 shares are unchanged.

The subject of intense debate among market players is how long the liquidity-fuelled upswing can continue, given the wide gap between fundamentals and stock valuations.

In a move that could further swell the tide of liquidity, Bank of Japan today pledged to increase its purchase of exchange traded funds, while keeping interest rates steady.

Despite the intermittent corrections, the widely held view is that global liquidity will continue to drive up stock prices across emerging markets in the short term.

“Liquidity will clearly continue to fuel the rally until the next big macro shock comes in but we have seen in all sorts of shocks being dealt quite deftly by the central banks and the asset markets continue to look the other side,” Pramod Gubbi of Ambit had told CNBC-TV18 on Thursday.

“There are quite a few events coming up later in the year which can feed those shocks but the question is can the central bank continue to deal with these by pumping in more and more liquidity,” he said.

Brokers say bears are wary of going short on the market as more liquidity measures—known in market parlance as helicopter money—could push stock prices higher.

Emerging markets has witnessed an inflow of USD 25 billion from foreign portfolio investors in this month so far, according to a report by Institute of International Finance.

And while many feel that India deserves the foreign capital flows it is getting, there are others who feel that the flows have nothing to do with fundamentals.

“Clearly valuations have become an issue we need to worry about and I would argue that this is not because the world has rediscovered India’s growth but it is just that there is a very strong wave of money coming into the emerging markets,” BoA Merrill Lynch’s Sanjay Mookim said in an interview to CNBC-TV18 today.

He says Nifty one year forward price earning multiple of 16-17 times was expensive relative to its long term average and the market could correct 12-15 percent if the Nifty PE multiple were to revert to its mean.

Auto, healthcare and utilities shares held ground while most other sectors were under pressure.

Big gainers included Dish TV, IIF, DCB Bank, CARE Ratings and Eicher Motors, which were up between 7-10 percent.

Among laggards, JP Associates, Religare, SPARC, GSFC and KPIT fell between 4-9 percent