Mumbai: Indian equity indices rose to their highest since mid-January on Thursday, as investors spirits were lifted by the prospect of lower interest rates, buoyant global markets and hopes that there are no more nasty surprises in store for the world economy.
The Bombay Stock Exchange’s bellwether 30-share Sensex closed at 10,003.1, gaining 3.47% or 335 points. The broad-based 50-stock Nifty rose 3.28%, or 97.90 points, to close at 3082.25.
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Fund managers are not willing to term the 20% rise in Sensex in the past two weeks a bull rally even though the underlying sentiment has improved along with a rise in trading volumes. According to them, the result of general election and corporate earnings for the quarter ending 31 March will determine the market outlook in coming months. The first phase of polls will be held in mid-April and the new government will be in place in June.
“Risk appetite is returning,” said Aneesh Srivastava, chief investment officer of IDBI Fortis Life Insurance Co. Ltd, who manages Rs70 crore worth of equity assets. “There has been good news across the world.”
Analysts attribute the immediate trigger for Thursday’s spurt in the markets to the lowest inflation number reported in 19 years and short-covering by investors. There was a 0.27% increase in the wholesale price index in the week to 14 March compared with the corresponding period a year ago, which gives the Reserve Bank of India more scope to cut rates and stoke growth.
Foreign institutional investors bought $574.6 million, or Rs2,316.37 crore, worth of shares in the past seven days while domestic mutual funds invested Rs453.3 crore in stocks during the same period, according to information on the website of Securities and Exchange Board of India, the market regulator, and the Bombay Stock Exchange, respectively.
The renewed buying interest from the foreign funds and short covering were behind Thursday’s rise of the index. Short covering takes place when traders who have sold shares they do not own in anticipation of lower prices buy shares to close the open position.
“There was a fair amount of short-covering and NAV (net asset value)-propping by local mutual funds,” said Ambareesh Baliga, vice-president at Karvy Stock Broking Ltd. “Overall, it was supported by international markets and FII (foreign institutional investor) buying.”
Domestic auto and cement companies, regarded as proxy indicators of economic growth, reported a spurt in sales in February. Passenger car sales grew 22% in February compared to a year ago and two-wheelers reported a 12% growth. The February numbers were also an improvement over January.
Global indices too have gained during the last fortnight on news such as higher sales of new houses and US Treasury secretary Timothy Geithner’s plan to revive lending among US banks by buying their toxic assets. US banks at the centre of the financial maelstrom, such as Citigroup Inc. and Bank of America Corp., too have reported profitable operations in the first two months of this year.
Indeed, some investors such as Templeton Asset Management’s Mark Mobius see this as the start of another bull run in emerging markets.
Emerging markets are in better shape than developed economies, Mobius told news agency Bloomberg earlier this week. “But I have a feeling we’re at the bottom and now we’re building a base for the next bull market.”
However, most fund managers, analysts and economists interviewed by Mint weren’t so enthusiastic.
“The big sell off is over, but there are lots of structural damages (to the global financial system) that are yet to be overcome,” said Vetri Subramaniam, head of equity assets at Religare Asset Management Co. Pvt Ltd. “It’s hard to see how there can be a swift resolution.”
And in a report released on Thursday, Citigroup economists Rohini Malkani and Suktae Oh wrote, “indicators across sectors (real estate, freight and port traffic) and macro data (credit growth and tax collections) continue to be worrying”.
Bloomberg and Ashwin Ramarathinam contributed to this story
Graphics by Sandeep Bhatnagar / Mint