Stocks rose sharply on the Bombay Stock Exchange (BSE) on the back of a continued strong performance by the Dow Jones Industrial Average, the benchmark index of US stock markets, receding worries about another interest rate hike by the central bank, and thus, improved corporate performance.
Analysts were quick to say that the latest rise indicated the beginning of the end of the period of uncertainty that saw the Sensex, BSE’s benchmark index of 30 stocks, lose 2,000 points since February. The index itself gained a modest 2% on Friday and 3.8% for the week, to close at 13,897.41. The week before, the index had gained 4%. It now stands around 750 points away from 14,652.09, the highest it has ever closed (on 8 February).
The Dow has risen 6.3% since 5 March and moved up in 14 of 15 trading sessions, through Thursday. On Friday, it surged over 100 points to a new intra-day high, and crossed 12,900 for the first time in its 111-year history, soon after the opening bell. It was at 12,914.85 at 10.00pm, India time. The Dow’s rise has primarily been prompted by better-than-expected corporate results in the US.
In India too, the ongoing earnings season has given marketmen cause for cheer (see chart) ; according to a Mint research, the aggregate sales of 136 companies grew 30.71% to Rs37,607.91 crore for the quarter ending March, compared with the corresponding quarter of 2006. The aggregate profit of these companies also increased 60.35% in the quarter. Since reaching its high in February, the Sensex has been ravaged by concerns over inflation—the wholesale inflation rate touched a two-year high of 6.63 in February and was at 6.09% for the week ended 7 April—interest rates and fears of a slowdown in the US economy.
Meanwhile, the Nifty, the broader, 50-stock index of the National Stock Exchange, gained 2.15% to close at 4,083.55, 141 points away from its high of 4,224 on 7 February.
Technical analysts, who predict the way a stock market moves by looking at trading history and other variables, expect the stock market to rise in coming weeks. Manas Jaiswal, a senior technical analyst at Emkay Securities, a Mumbai-based brokerage, said that the Nifty’s performance suggested what was to come as it broke out of the range it had been trading it for the past month. “Today it has broken through the 4,060 mark, which is a very strong resistance level. It may test the 4,186 level in the next few days and, after that, could test its historic high in the next 15-25 days,” he said.
The derivatives market too indicated that stock prices could continue to go up. It saw a reduction in the build-up of short positions that investors take in anticipation of a fall in stock prices. “Large short positions were built into the system in the last two months. These are now being liquidated and we have started witnessing the formation of longpositions in the last few sessions,” said Siddarth Bamre, an analyst with Angel Broking.
Analysts also expect the appreciating rupee to attract more foreign investments into Indian markets. “The rupee is appreciating and this means that money is flowing out of the US to other emerging markets including India,” says Sanju Verma, the head of institutional sales at HDFC Securities. This year, foreign institutional investors (FIIs) have invested $2.47 billion (Rs10,374 crore) in Indian markets with $1 billion coming in April alone. In 2006, FIIs invested $8 billion in India, and total FII investments add up to $51.5 billion.
The stock market also seemed to largely discount a higher-than-expected rate of inflation—its expectation was around 5.8%—because most analysts see that figure heading lower in coming weeks. “Inflation level will come down as we proceed further in this fiscal and as a result, a high interest rate is not going to be there forever,” said Verma.
RBI, which raised a key short-term lending rate five times in 2006-07, is scheduled to meet again on Tuesday. “We see interest rates peaking out at this level,” said Harshad Patwardhan, investment manager-equity, JP Morgan Asset Management.