Mumbai: Indian equity indices rose to a new high for calendar year 2009 on Thursday as investors continued buying stocks encouraged by strong global markets, a positive flow of economic data, expectations of a cut in the benchmark rate of the European Central Bank (ECB) and concrete action in the Group of Twenty (G-20) summit in London.
Indeed, the Frankfurt-based ECB cut its benchmark interest rate by 25 basis points to a new low of 1.25% to boost spending in the 16 countries that use the same currency—euro. News of the rate cut came in after the close of market hours in India. One basis point is one-hundredth of a percentage point.
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The 30-share Bombay Stock Exchange Sensex gained 446.8 points, or 4.5%, to close at 10,348.43, its highest since the second week of November. For the broad-based 50-stock Nifty index of the National Stock Exchange, Thursday’s close of 3,211.05 is a six-month high.
Brokers and fund managers expressed a new sense of optimism on the market trajectory based on improved auto sales in India and lower interest rates. A string of commercial banks have cut their prime lending rate, or the rate at which they lend to their best borrowers , this week. Besides, better-than-expected auto sales data in the US, an increase in the number of home sales, and a slight rise in a survey of manufacturing conditions also contributed to the momentum of the market.
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“Relative to where we were in November and early February, there is a sense of optimism,” said CEO and country head of Morgan StanleyNarayan Ramachandran. “If risk preference returns in global markets, then India could receive $15-20 billion in FII money since it is one of the pockets of growth.”
Indeed, foreign institutional investors (FII), the main driver of Indian equity markets, have bought stocks worth $667.8 million (Rs3,359 crore today) since 9 March, when the present rally started. Mutual funds and insurers pumped in some Rs2,209 crore during this period on lower valuations.
“Investor confidence is returning in bits and pieces,” said A. Balasubramanian, who manages some Rs47,000 crore as chief investment officer at Birla Sun Life Asset Management Co. Ltd. “Whatever has been done in the last three- four months on fiscal stimulus and monetary policy will start reflecting (on the economy).”
Investors are also confident that more such stimulus packages may be on the cards after the G-20 meeting. The G-20 is a club of finance ministers and central bankers of some of the largest economies, including the US, UK and India.
Rate cuts and fiscal stimulus packages seem to have had some effect so far. For instance, Maruti Suzuki India Ltd reported a third straight month of sales increase in March. In the US, the world’s largest car market, March sales rose 25% over February, raising revival hopes.
Most major markets are lapping up this good news with sharp recovery from their multi-year lows. Japan’s Nikkei gained 4.4% on Thursday, while Hong Kong’s Hang Seng soared 7.4%.
In past three weeks, the Sensex has risen close to 27%. This has decidedly changed the mood on the Street, but some fund managers and economists caution that it is too early to call it a recovery. “It is very difficult to say that the market is out of the woods yet,” said Ramachandran Krishnan, head of wealth management at Barclays Wealth India. This rally is “largely driven by global cues”.
Jahangir Aziz, chief economist at the Indian unit of JPMorgan Chase and Co., said the slowdown will be sharper in the first two quarters of this calendar year on inventory de-stocking.
Graphics by Ahmed Raza Khan / Mint
Ashwin Ramarathinam contributed to this story.