Mumbai: India’s most tracked stock market index, the Sensex, gained more than 3% on Monday, backed by positive investor sentiment across Asia after the US government bailed out troubled mortgage firms Fannie Mae and Freddie Mac. International approval for India to enter nuclear commerce also provided a boost.
The Bombay Stock Exchange’s (BSE) Sensex closed notches below the 15,000 mark after trading higher for most part of the day. It ended the day at 14,944.97, up 461 points.
At the National Stock Exchange, the broader 50-stock Nifty index gained 3% to close a tad below the 4,500 level, at 4,482.30 points. BSE’s banking index, or the Bankex, gained the most among sectoral baskets, rising more than 4%.
Apart from the US Treasury’s injection of $100 billion (Rs4.43 trillion) each into Freddie Mac and Fannie Mae, its commitment to buy the government-sponsored enterprises’ mortgage-backed securities until borrowing costs eased to more acceptable levels was another unexpected positive development, brokers said.
Rallying Hard (Graphic)
“These measures are, therefore, aimed at increasing both the supply of, and demand for mortgages,” said Christopher Wood, equity strategist at brokerage CLSA Asia-Pacific. This should help stabilize the market sentiment, he added.
With the exception of China, all other key Asian markets rallied on Monday. The benchmark indices in South Korea and Taiwan rose more than 5% each, while Hong Kong and Singapore gained more than 4% each. The Chinese benchmark index slumped 2.6%. Japanese and Australian indices gained more than 3% and most European markets were trading significantly higher.
US stocks joined the rally. The Standard and Poor’s 500 index gained 25.19 points, or 2%, to 1,267.50 at 10:31am in New York. The Dow Jones Industrial Average rose 266.98, or 2.4%, to 11,487.94.
According to some brokers and analysts, the morning rally in local stocks was also spurred by the 45-nation Nuclear Suppliers Group’s (NSG) decision on 6 September to allow India access to atomic material and technology, although it hasn’t signed global non-proliferation treaties.
Many large and mid-sized stocks, including Reliance Industries Ltd, NTPC Ltd, Bharat Heavy Electricals Ltd, Larsen and Toubro Ltd and Siemens Ltd, rallied as these could profit from the nuclear deal, which opens the doors of nuclear commerce to India.
But positive cues from world markets and hopes of inflation having peaked globally may not be enough to sustain the rally in the Indian stock markets, which are weighed down by concerns over higher interest rates, slowing economic growth and impending state polls that will lead up to general elections in May next year.
“The rally across world stock markets could extend, but Indian markets are unlikely to witness a substantial rally from the current levels in the short term,” said an executive with a foreign institutional investor, asking not to be named.
A pan-Asia equity strategy report by Garry Evans of HSBC Holdings Plc. on 5 September recommends clients to remain 60 basis points underweight on India. One basis point is one-100th of a percentage point.
Many domestic mutual funds and foreign portfolio funds were booking profits on Monday. This led to the Sensex trimming some of its sharp gains by evening trade.
Bloomberg contributed to this story.