Mumbai: Monday was the day of a historic rise in stock prices. On Tuesday, market turnover created history.
The value of shares traded in Indian markets rose to Rs1.5 trillion, as investors and fund managers waded into the equity market to book profits and cut losses.
India’s bellwether equity index, the Sensex on the Bombay Stock Exchange (BSE), rose 17.7% in less than 60 seconds in a two-phase trade on a Rs3,103 crore turnover before trading was halted for the day on Monday, for the first time ever, because of the unprecedented surge in stock prices. As if to compensate for the extremely slim trading volume of the previous day, turnover rose to a stratospheric level on Tuesday in a highly volatile market that saw the Sensex swinging 1,096 points and the broad-based 50-stock Nifty on the National Stock Exchange (NSE) swinging 341 points.
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Two opposing forces of short sellers and profit bookers were in the market in hordes before the indices closed almost flat. The Sensex closed at 14,302.03 after rising to 14,930.54 in intraday trade. The Nifty crossed 4,500 points during the day but finally closed at 4,318.45.
Short-sellers sell shares they don’t own in anticipation of prices coming down. When prices go up, they need to place immediate buy orders to cut losses. Profit bookers are those who want to encash their paper wealth with the rise in stock prices.
Short-sellers and investors did not have the time to cut losses or encash their gains on Monday as trading was halted on a stock market regulation that stipulates such halts if the index crosses certain levels.
Fund mangers say the outlook will remain bullish for some time as global markets also gained and hopes rose for a reform-friendly Union budget. The new Congress-led government is likely to take over later this week and the budget is expected to be placed in Parliament in late June or early July. Fund managers expect the new government to aggressively push for economic reforms as it will not have to depend on the Left parties, which traditionally oppose reforms, for its survival.
That investors have started punting on the budget is seen in the movement of realty, capital goods and bank stocks. The BSE’s realty index soared 12.8% on expectations the government will raise the foreign direct investment, or FDI, limits in that sector. Current FDI norms in real estate stipulate that foreign firms can invest only in projects that have a built-up area of 50,000 sq. mt or land of 25 acres.
The capital goods index gained 6.33% in anticipation of a big push towards infrastructure projects.
The 6.84% rise in the Bankex, the exchange’s banking index, reflects the bullishness on the outlook of the world’s second fastest growing economy, which has largely been able to insulate itself from the global meltdown by virtue of limited dependence on exports and growing rural demand. Bank stocks are considered a proxy for the economy.
“There’s an expectation that foreign holding limits in these (public sector) banks may be raised,” said Rashesh Shah, chief executive officer at Mumbai-based brokerage Edelweiss Capital Ltd. Foreign holdings in state-run banks is capped at 20%. These banks were also looking for a new government so that they can finalize capital raising plans.
The Rs1.5 trillion turnover is at least double the average turnover of Indian markets since 9 March when the current leg of the bull run started. Since then, the Sensex has risen 75.27%, the highest among all emerging markets.
The NSE’s volatility index, or Vix, on Tuesday closed at 58.1 after touching an intraday high of 69.01. It is far lower than the levels seen in November when it crossed 92. The Vix indicates the level of fear or panic.
While the turnover may not touch this level often, it should improve as foreign funds joined in the party, traders said. Foreign flows to emerging markets have risen continuously for the past eight weeks as investors developed a fresh appetite for risk.
Foreign institutional investors or FIIs have bought Indian shares worth $2.14 billion (Rs10,165 crore) net of selling in 2009 after taking out $13.3 billion from in 2008.
On Tuesday, global markets rose strongly on news that Goldman Sachs and Morgan Stanley have asked the US Federal Reserve for permission to repay some $20 billion in bailout money and Germany’s ZEW business sentiment indicator rose for the seventh straight month. Singapore’s Strait Times Index gained 3.83% while Hong Kong’s Hang Seng Index rose 3.06%.
“Global liquidity has risen,” said Gopal Agarwal, head of equity assets at Mirae Asset Management Ltd, pointing to the fall in the three-month London interbank offered rate, or Libor, to 75 basis points. One basis point is one hundredth of a percentage point. “After the verdict, FIIs will come back to India and the markets are likely to remain strong,” said Agarwal.
But not everyone is gung-ho about the sharp rise. “While it’s positive, markets are likely to trade in a narrow range from now on,” said Dharmesh Mehta, head of broking at Enam Securities Pvt Ltd. “A lot of things are yet to happen on the policy front.”
The combined fiscal deficit of the Centre and states stands near 11% including oil and fertilizer subsidies and with the global slowdown weighing on falling exports, the budget might be unlikely to produce a sudden boost to economic growth.
M.C. Govardhana Rangan of Bloomberg and Ashwin Ramarathinam contributed to this story.
Graphics by Sandeep Bhatnagar / Mint