Nifty, Sensex at 2-yr highs; but macro woes may curb rise

Key equity indices rose for the second consecutive session to finish at two-year highs Wednesday, as investors across the globe cheered the resolution of the US fiscal crisis.

The Nifty closed at 5993, up 42 points after touching 6006 intra-day. This is the first time in two years that the index has topped the psychological 6000-mark. The Sensex closed 19714, up 133 points over the previous close.

Capital goods, oil & gas, banking and automobile shares were among the star performers of the day, while investors continued to trim positions in defensive sectors like IT, FMCG and pharma.

BHEL, GAIL, Maruti Suzuki, Sterlite and ICICI Bank were the key gainers among frontline shares, rising between 1-3 percent.

The mood in the stock market is upbeat even as the Finance Minister termed the latest current account deficit (CAD) as "worrying" and said the government was considering curbs on gold imports, among other things, to narrow the gap.

Experts say the current upswing is being driven by reasons of sentiment and liquidity, and may not sustain in the backdrop of weak economic fundamentals and expensive stock valuations.

"I am not as optimistic about 2013 as I was about 2012," Madhusudhan Kela, Chief Investment Strategist at Reliance Capital told CNBC-TV18 in an interview.

"There is a widespread consensus among major domestic and foreign fund houses that 2013 is going to be extremely good. The first quarter might be very positive but I don't rule out the market giving up 10-15 percent of its gains in the next quarter," he said, adding he was struggling to find 20-30 good stocks to invest in because of high valuations.

And while few expect any nasty surprises during the third quarter earnings season, there may not be much to cheer about as far as revenue growth is concerned.

"We believe that revenue growth will remain under pressure due to weak consumer sentiment and sluggish investment cycle. Slower volume growth is likely to constrain revenue expansion, mainly in sectors such as automobiles, FMCG, capital goods and metals," said Mukesh Agarwal, President, CRISIL Research.

However, he said operating margins could be steady on lower input costs and other cost control measures by companies.

The rally in Indian equity markets, triggered by fiscal cliff deal and supported by metal, oil & gas, banks and auto, continues unhindered. At 3 PM, the Sensex was up 142.14 points or 0.73% at 19722.95, and the Nifty up 43.40 points or 0.73% at 5994.25. European markets too are trading with significant gains

Bajaj Auto rose sharply after the company announced its December sales numbers. The stock appreciated by 3.56% on the Nifty to trade at Rs 2208 per share. Maruti Suzuki was up 2.92% at Rs 1559 apiece. Speaking to CNBC-TV18, Sudarshan Sukhani said the auto sector looks upbeat on the charts and investors should go long on it.

Technology remains a laggard in todays show of strength. Wipro was the biggest loser registering 1.10% cut. Infosys and TCS were tading with a loss of 0.12 and 0.05%. Meanwhile, the Nifty breached the 6,000-mark for the first time in two years on persistent capital inflows after the US Congress passed the "fiscal cliff" deal.

The benchmark 50-share Nifty topped the psychological 6000-mark as markets across Asia rallied on the US ''fiscal cliff'' being averted.

The US Congress approved a tax increase on Tuesday targeted at wealthy households in a budget deal that should stop the economy from slipping into a recession.

The Nifty was up 54 points at a 2-year high of 6005, and the Sensex rose 171 points to 19751.

Market experts however cautioned against buying into the rally.

''Much of the rally in the last few months has been on the expansion of PE (price earning) multiples in anticipation of earnings growth; we are yet to see the growth happening,'' said Madhu Kela, Chief Investment Strategist at Reliance Capital.

Capital goods, metal, banking and oil & gas shares were among the best performers, while investors continued to shun defensive sectors like IT and FMCG.

A key near term worry is the rupee coming under pressure because of the high current account deficit. That in turn, could prompt FIIs to book profits to protect against forex losses arising from a weak rupee.

"Even though one could expect to see bouts of INR appreciation in the coming weeks on the back of either push factors (formalization of a mini-deal on the fiscal cliff) or pull factors (a larger-than-expected rate cut by the RBI, a positive Budget), the fact that the Current Account Deficit is unlikely to meaningfully compress in the coming quarters is expected to serve as a key headwind for the INR (Indian rupee) in 2013," said a note by brokerage house JPMorgan.

Steel Authority of India, National Aluminium and Canara Bank were among the prominent gainers, rising around 3-4 percent. Metal shares were strong on Tuesday too, as any improvement in the US economy spells cheer for the global economy as a whole.

The BSE benchmark Sensex today gained nearly 144 points in early trade on sustained buying by funds amid a firming Asian trend.

The 30-share barometer rose by 143.57 points, or 0.73 percent to 19,724.38 with all the sectoral indices, led by realty and metal, trading in positive zone with gains up to 1.25 percent. The index had gained 154.10 in yesterday's trade.

The wide-based National Stock Exchange index Nifty moved up by 41.25 points, or 0.69 per cent per cent, to 5,992.10. Brokers said the sentiment remained strong on sustained inflows from foreign funds into equity market amid a firming trend in the Asian region as US poised to avert fiscal cliff.

Banking sector stocks continued their upward march on expectations of a rate cut by the Reserve Bank of India. Stocks of Bank of India gained 0.71 per cent, State Bank of India shot up by 1.20 per cent, while ICICI Bank up 0.91 per cent. In the Asian region, Hong Kong's Hang Seng rose by 1.18 percent. The stock market in Japan is closed today.