Here’s what led to the Indian stock markets’ record highs

• After a subdued start to 2018, following a boom year in 2017, India’s stock markets have bounced back in the last few months.
  
• The Sensex crossed 37,000 points for the first time in its history while Nifty reached a new high of 11,232 points.
  
• A number of reasons have contributed to this performance such as strong quarterly earnings from Indian companies, an improvement in the rupee and a solid monsoon season.
  

Indian investors have finally been given a reason to celebrate following a slump in the value of the rupee and the exodus of foreign portfolio investors.

After a subdued start to 2018, following a boom year in 2017, the country’s stock markets have bounced back in the last few months. The upward trajectory, which commenced at the start of the new financial year, culminated in record highs on July 26th.

The Sensex, a benchmark index of 30 stocks on the Bombay Stock Exchange (BSE), crossed 37,000 points for the first time in its history, closing at 37,253 points. After scaling 36,000 points on January 24th, it hovered below that mark until July 10th. In fact, it has gained more than 500 points alone this week. Meanwhile the Nifty, a benchmark index of 50 stocks on the National Stock Exchange, reached a new high of 11,232 points.

This performance is largely due to buying frenzy by domestic investors. In addition to the government’s easy defeat of a no-confidence motion and a solid monsoon season, a number of other factors have caused this renewed confidence in Indian markets.

Strong Q1 earnings from India Inc

A number of large Indian companies such as Tata Consultancy Services, Hindustan Unilever and Maruti Suzuki have posted strong quarterly results for the April-June period. The highest growth in sales and profits has been seen by companies in the consumer goods and IT sectors, whose results have been measured against a weak year-ago quarter wherein they were preparing for the implementation of the GST regime and recovering from demonetisation. Additionally, the decline in the value of the rupee has seen companies in export-led sectors record higher profit margins.

A rebound in bank stocks

The stocks of banks and financial institutions, especially SBI, ICICI Bank and Axis Bank, have been performing extremely well as concerns regarding the bad loan crisis have waned slightly. The Bombay Stock Exchange’s banking index is up by more than 5% since the beginning of the year.

On July 24th, a number of public-sector banks signed an intercreditor agreement to allow for the quick resolution of stressed assets. As per the agreement, a liquidation plan will only require the approval of two-thirds of the relevant creditors to be passed. A number of private banks are expected to sign the creditor agreement soon.

An improvement in the rupee

The rupee has fared well in the past week, staying well below the 69 mark amid the weakening of the dollar as exporters and Indian companies have selling off their dollar reserves. The Reserve Bank of India (RBI) has had a large part to play in the propping up of the currency, dipping into its foreign exchange reserves to stem the rupee’s slide.

As a result, the RBI’s forex reserves have declined from around $426 billion since the start of the financial year to around $400 billion. They are expected to declined further as the foreign investor pullout from emerging markets continues.

The aversion of a trade war between the US and EU

Global markets have slumped in recent months following concerns of a full-blown trade between the US and its major trade partners - the likes of which include the European Union and China. As the US-China dispute continues, at least the rift with the EU has been avoided for now. On July 25th, the European Union and White House released a joint statement pledging to iron on their differences with respect to trade and work towards zero-tariffs and lower barriers. US and European investors responded positively, driving global markets to a four-month high.