Stocks at new high; volatility jumps too

An outperformance in large-cap stocks drove the Nifty and the Sensex to fresh highs on Wednesday, as both foreign portfolio investors (FPIs) and direct retail investors stepped up buying. However, volatility index India Vix—which normally rises when markets fall and vice-versa—rose to a 10-month high, likely signalling trader discomfort at record high levels.

- Ram Sahgal

The Nifty hit a fresh high of 21,675.75, while the Sensex soared to an intraday record of 72,119.85 as FPIs purchased a provisional ₹2,926.05 crore even as domestic institutional investors (DIIs) sold ₹192 crore worth of shares. Though the indices closed a tad lower each, they posted closing records, with the Nifty gaining 1% to 21,654.75 and the Sensex 0.98% to 72,038.43. The indices have risen for four straight sessions. Direct retail volumes aren’t reported daily.

The Nifty and the Sensex have now clocked annual returns of 19.6% and 18.4%, respectively. Interestingly, the last two months accounted for the bulk of this, thanks to heavy FPI inflows during November and December. The Nifty has run up 14.83% and the Sensex by 14.07% from the closing of 18,857.25 and 63,148.14, respectively, on 26 October. That means 76% of the Nifty’s annual rally happened in the last two months.

The latest leg of the rally has taken valuations past historic levels, with the Nifty trading at a one-year forward price-to-earnings (P/E) multiple of 19.9 times versus the five-year median of 17.97, with the Sensex P/E at 20.56 times against a historic 18.77 times median. The Sensex one-year forward is, in fact, near a two-year high.