The familiar tune of the old song may ring in your head as it did in mine while thinking of a title for this piece. A tiring, boring, frustrating two-month trading range. And finally, a break out at last.

While the rain Gods opened up the heavens on Mumbai, bulls decided to open the market’s upside, and the result- a strong 100 point rally that’s taken the Nifty past several important resistance levels in a swift move.

So is it really a big deal? Well yes, because in three sharp sessions the market has not only crossed the Karnataka election result day high, but it has done so in style.

Tuesday’s session had all the signs that announce a revival of the rally – wide participation across sectors, a return of midcaps and a let up in FII selling.

The rally seen so far this week is not supported on just a few key index heavyweights but a wide array of stocks – giants like RIL and the HDFC twins are leading from the front.

Commodity stocks like GAIL and Hindalco found their mojo on Tuesday and autos have been firing strong ever since June sales numbers were released. There are also the odd L&T and HUL which have been pitching in, on and off.

That’s not all. Tuesday’s move, much like Monday’s was a clean one – all dips were bought and the rally went on to the broader market as well.

Interest is slowly but clearly returning in midcaps – and not just in the big well-known names like an Ashok Leyland or Jubilant Food but even some of the forgotten stocks that fell off the radar in the midcap meltdown over the last two months.

So what led to this break out now? And more importantly, will the upside last?

Cynics will argue that trade war issues are still a reality, Brent is knocking at the doorsteps of $80 and Indian macros including the Rupee still look vulnerable.

But markets always discount the future and more often than not have a way of surprising even the most informed investors. The one thing the current rally may be beginning to price in is an expected earnings upswing.

TCS and IndusInd bank has given the Q1 reporting season a flying start. You really can’t sound pessimistic in the face of 30% loan growth nor can you laugh off TCS’s 4% constant currency growth that’s topped all street estimates.

Most brokerages have an upbeat forecast for the first quarter largely because the base period suffered from destocking ahead of the GST rollout as well as the residual impact of demonetisation.

Also with monsoons being largely favourable so far and an expected pick up in rural spending ahead of elections, the mood on the micros is largely positive.

Motilal Oswal, for instance, expects Nifty Companies to deliver 23% sales growth and a 26% growth in profits in the first quarter – that would be the highest earnings growth in 16 quarters.

Antique puts its Nifty Q1 earnings growth estimates at 17% and the number Kotak is going with is 12%. Now, this is not to say that PSU banks won’t report high provisioning or that we won’t see any ugly midcap disappointments – those will take place and the stocks will get adequately punished.

But for now the bulls seem to be in a mood to take on the pessimism.

Show me the money!

If the bulls are going to put up a fight to retain these levels and maybe even aim for Mount Everest (read 11,200 on the Nifty), they need to be backed up by liquidity.

And here, the trend gets interesting. Its still early days but data shows the spate of FII selling seems to be somewhat ebbing. After seeing an outflow of over Rs 10,000 crore in May and nearly Rs 5000 crore in June, July FPI numbers are actually positive – a net inflow of Rs 315 crore so far.

Of course the slight worry, on the other hand, is the tapering off in domestic mutual fund inflows over the last few months. Net inflows into equity funds are down 32% in June over May.

Mutual fund CEOs and fund managers, however, are keeping their faith in the loyal SIP investor and say there are no large-scale redemptions so far.

Where does this leave the market?

Despite all the volatility of the last few months, the Indian market hasn’t actually done too bad on the global arena at least at the index level.

The Nifty is up 4% so far this calendar year – almost in step with the S&P 500. We are also much better off than our Chinese neighbours which have seen their equity market drop 16% in 2018.

India has also outperformed much of the Asian region with markets in Singapore, Thailand, South Korea & Indonesia down between 3-7%

Bulls may have wrestled control for now, but money will have to fuel this fight for them to continue their bravado.

Apart from liquidity drying up, a bigger oil price shock is the other major risk to this rally. And then, of course, there is politics and state elections that are bound to keep the market volatile.

So yes, while it may not be a one-way street, for now, the bulls are surely enjoying their rain dance on it.

First Published:Jul 10, 2018 10:47 PM IST