Investors' optimism on equities is at its highest this year on expectations of strong economic growth driven by reforms like the Goods and Services Tax (GST) and improving global growth.
The India Volatility Index (VIX), a measure of investor uncertainty, last week fell to 13.73, its lowest level since August 31, 2016 even as the broader Nifty 50 Index neared record highs. Lower volatility bodes well for stocks as it indicates greater confidence among market participants.
In fact, the correlation between the Nifty 50 and the India VIX, which typically trade in opposite directions, rose to its peak on February 20.
People are mentally prepared that there won't be any sharp downside in the markets. It means market fear is getting lesser day by day, both on account of positive domestic and global cues.Dharmesh Shah, Assistant Vice President - Technical, ICICI Securities
Growth Optimism
Analysts BloombergQuint spoke to attributed this optimism to improving economic growth prospects in India, expectations that the much-awaited GST will be rolled out by July 1 and better-than-forecast December quarter results,
The GDP has fired up, earnings are good and there is a possibility of GST rollout on July 1. So overall outlook on India remains extremely positive and we will remain a preferred investment destination.Gaurang Shah, Assistant Vice President, Geojit Financial Services
Investors are betting on further gains from positive domestic reforms domestically and improving global growth prospects especially after U.S. President Donald Trump announced $1 trillion in infrastructure investment, increased defense spending and a tax overhaul offering cuts for the middle class.
The market is going through a good liquidity phase and global markets are helping with all Trump optimism.Hemen Kapadia, Senior Vice President - Institutional Equity, KR Choksey Securities
The Nifty 50 has risen nearly 9 percent this year, the second most among benchmark equity indices in the four largest emerging markets on strong support from domestic investors and and the revival of foreign investor participation after a temporary lull in the latter half of 2016.
Overseas funds bought Rs 7,185 crore of shares so far in 2017, the most in Asia after Taiwan and South Korea, data compiled by Bloomberg show. Domestic institutional participation remained robust with a net purchase of Rs 5,914 crore this year.
Also Read: Demonetisation Fails To Derail Nifty 50's Growth Story
Going Too Easy?
Traders, however, fear the market is too bullish at this stage and some correction could be in the offing if India VIX cools down further.
“The only concern is if VIX approached 12-12.5 implying that market is taking it too easy. So if we do see those levels, it would signal a slight rebound in VIX and a small correction coming in the market,” Kapadia said.
One key trigger traders are watching is the outcome of the Uttar Pradesh assembly elections on March 11. A victory in the Uttar Pradesh would strengthen the BJP's position in the Rajya Sabha, or the Upper House of parliament, to push contentious land and labour reforms, says Shah.
If BJP gets tailwind mandate then we will seeearlier life-time highs easily been taken off and we would go towards 9,300 or9,500 and if not, we will fall 500 points or may be more depending on theoutcome.Gaurang Shah, Assistant Vice President, Geojit Financial Services
Also Read: Mobius Still Bullish on Asian Stocks Despite Shadow of Trump
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