Indian stocks soar to new records in 'peculiarly powerful rally'

India's stock markets hit record highs on Tuesday (25) with the National Stock Exchange's much-watched Nifty index breaking the psychological 10,000-point mark for the first time as traders take heart from economic reforms.

The Nifty, which is made up of 50 of India's top companies across more than a dozen sectors, rose 0.45 per cent, or 44.90 points, to hit 10,011.30 shortly after opening.

That came as the Bombay Stock Exchange's Sensex index extended its golden run, rising 0.39 per cent, or 128.43 points, to 32,374.30, also an all-time high as Indian equities enjoy a months-long rally.

The two markets have piled on 20 per cent this year -- outperforming most other global markets, including in Japan and the United States as confidence is boosted by reforms to Asia's third-largest economy.

Experts say prime minister Narendra Modi's moves to improve the ease of doing business, coupled with stable inflation and a general pickup in worldwide sentiment is fueling the boom.

"Local and global factors are combining to create a peculiarly powerful rally in Indian stocks," Saurabh Mukherjea, the CEO of Ambit Capital, said.

The BSE is Asia's oldest stock market and was established in 1875 while the NSE's Nifty index was launched in 1996, although it has been growing in importance.

Domestic investors have bought around 250 billion rupees ($3.88 billion) worth of stock across both exchanges since January 1 while foreign investors have acquired more than $8 billion.

The Sensex started the year at 26,700 points but is now comfortably above the 32,000 mark while the Nifty has put on almost 2,000 points since the start of 2017.

"Crossing the 10,000 benchmark shows investor sentiment is strong and the economy is in a good spot," IIFL Institutional Equities economist Ashutosh Datar said.

The buying spree comes as India's inflation, once known for its wild fluctuations in the past, holds steady well below targets. Retail inflation for June fell to a record low of 1.54 percent.

That is creating a climate of stability, which is encouraging investors to trade, and stirring hopes of an interest rate cut next month that would boost confidence further, analysts say.

"With macroeconomic factors such as the low inflation level, Indian stock markets are performing well. Inflows, both domestic and global are very strong," Saurabh Jain, an executive director at Standard Chartered said.

Overseas investors have been buoyed by Modi's relaxing of foreign direct investment rules and the recent introduction of a single goods and services tax (GST), which replaced a decades-old patchwork of federal and state taxes.

"Various reforms undertaken by the government including passage of GST is creating investor confidence and setting India apart in the global context," said Jain.

With sentiment seemingly unaffected by Modi's shock decision to scrap almost 90 per cent of the country's currency from circulation last November some analysts are speculating about just how high the markets can go.

Morgan Stanley chief strategist Jonathan Garner projected in a recent note that the Sensex would touch 34,000 points in the middle of next year.

But Bank of America Merrill Lynch predicted the index would drop to around 30,000 by the end of the year.

And economists said that emotion is spurring the bull run, which in turn is inflating the actual value of certain stocks.

As investors seek a better price-to-earnings ratio market-watchers expect some losses before the end of the financial year in March 2018.

"There is concern in certain pockets about this over-exuberant performance of the markets and evaluations are happening. Corrections will set in eventually," said Datar.