The finance ministry has sounded an early warning in an attempt to subdue the wave of euphoria that has rippled through the stock markets in the past week.

On a day when the bellwether market indices surged to fresh peaks, the ministry voiced its concern that global stock markets could stumble with the possibility of spillover effects being felt worldwide.

“Stock markets around the world are booming, reinforced by recent policy announcements in a few countries. Consequently, the risk of an eventual correction has risen. If the risk materialises, the spillover effects may be felt globally as well,” the Department of Economic Affairs said in its monthly economic review for August 2024.

The bullish sentiment in the stock markets has been whipped up after the US Federal Reserve aggressively cut interest rates by 50 basis points and the Chinese central bank announced a raft of measures to shore up a faltering economy.

The rah-rah market optimists in Mumbai have already started to talk about the Sensex blazing past 100,000 sometime next year — a sort of cheery forecast that is designed to trigger a stampede into equities.

However, the finance ministry’s concerns are compounded by fears of a recession in advanced economies, ongoing geopolitical conflicts and the anticipation of a global cycle of policy rate cuts. “A challenge on the macroeconomic front is of navigating the continuing uncertainty in global economic prospects.”

The Securities and Exchange Board of India has also sounded an alert on the unbridled trading in the F&O segment and is likely to impose stricter rules for F&Os at its board meeting on September 30.

The BSE Sensex jumped 666.25 points or 0.78 per cent to settle at a record high of 85836.12 amid monthly expiry in the derivatives segment.

During the day, it reached a record intra-day peak of 85930.43, surging 760.56 points or 0.89 per cent.

“There is a strong buying momentum in the market that is fuelled by robust liquidity. In such a scenario, the markets can overextend which means that we may see the 100k number shortly,’’ according to Vaibhav Porwal, co-founder, Dezerv, a portfolio management firm.

“Given the current overbought conditions across several parameters, it might be wise for traders to book profits at higher levels and look for re-entry opportunities during any corrective phases,” Rajesh Bhosale, technical analyst with Angel One Ltd, said.

Analysts said the market strength will be put to test when corporate India starts declaring quarterly results for the period ended September 30.

In the immediate term for domestic markets, the next key event is the Sebi board meeting which could raise the bar for retail investors when it comes to derivatives trading, among other steps.

A discussion paper put out by the market regulator had proposed raising the minimum contract size for index derivatives in two phases. This is likely to be accepted by its board.

Rupee falls

Meanwhile, the rupee settled lower on Thursday on month-end demand for dollars even as inflows from foreign portfolio investors cushioned its fall. The currency settled at 83.64 against the greenback against the previous close of 83.60.

At the inter-bank forex markets, the unit opened at 83.65 and touched a day’s low of 83.71 on account of month-end dollar demand from importers particularly oil firms.

According to a Reuters report, a large foreign bank has also been bidding for dollars linked to the unwinding of some long bets on the rupee.

However, the local unit recovered from the lows amid a rally in the equity markets and continued support from FPIs.

Provisional data from the stock exchanges showed them making net purchases of nearly ₹630 crore on Thursday.