Mumbai: Forecast-beating corporate earnings, hopes of more reforms and a likely policy rate cut by the Indian central bank in the backdrop of easing wholesale-price inflation steered the bellwether equity index, the Sensex, of BSE Ltd, past the psychologically important 20,000 points on Tuesday to a two-year high.
Analysts are optimistic on the Sensex moving to a record and this can happen before the national budget, traditionally presented on 28 February.
On 5 November, 2010, the Sensex closed at his highest level, 21,004.96 points.
The benchmark index’s intra-day high has been 21,206.77, recorded on 10 January 2008.
The Sensex closed at 19,986.82 points, up 0.4% from Monday’s close. It rose to 20,036.82 points intraday, the highest level since 6 January 2011.
The broader 50-share Nifty of the National Stock Exchange closed 0.5 % higher at 6,056.60 points.
Positive news flow, both on the domestic as well as the global fronts, is boosting risk appetite for investors. They have shifted focus to equities in a big way after the US averted tumbling into the fiscal cliff and on hopes of a better macroeconomic scenario in China. On the domestic front, the government decision to delay the implementation of controversial rules on tax avoidance and lower-than-expected inflation have added to the sentiment.
“It’s all good news for now. We should see the market forming a new high any time soon,” said Rakesh Rawal, head of private wealth management at brokerage AnandRathi, adding that retail investors were also turning active in the markets.
On Monday, finance minister P. Chidambaram deferred the implementation of the general anti-avoidance rules (GAAR) by two years, a move that could encourage foreign investors to consider India a safe destination for their money after being spooked last year when first proposed.
This, along with the decision to raise rail fares after a decade and the government’s intent to push through greater fiscal consolidation by tweaking diesel prices, set a perfect stage for Chidambaram to launch his global roadshows to woo foreign investment next week in Hong Kong and Singapore.
The quarterly earnings season, which has just started, is promising and the worst could be behind Indian corporations. Software exporters Tata Consultancy Services Ltd (TCS) and Infosys Ltd have pleasantly surprised the Street, with quarterly earnings that beat analysts’ estimates.
TCS reported a 26.7% rise in net profit for the quarter ended December, beating analysts’ expectations in a seasonally weak quarter and auguring well for the troubled $70 billion Indian information technology (IT) exports business.
Infosys also beat expectations when it reported 12.1 % year-on-year rise in net profit, its first positive news since June last year when it stopped quarterly revenue forecasts.
“The earnings are good and more importantly,. the optimistic tone of the corporates is encouraging. It appears that policy reforms will go through. It looks like good times are here,” said Deven Choksey, managing director and chief executive officer of KR Choksey Shares and Securities Ltd.
“As far as the global scene is concerned, a perfect situation cannot be expected so soon. However, for now, things look settled and there are no big foreseeable risks in the very near term,” added Choksey.
Third-largest private lender Axis Bank Ltd reported a 22% year-on-year rise in net profit for the December quarter helped by higher interest income and lower provisions for bad loans, while smaller rival IndusInd Bank Ltd posted a 30% rise in quarterly net profits on higher demand for loans.
Foreign funds have already poured $1.6 billion into Indian equities in the first fortnight of 2013, adding to investments worth $24.6 billion in the previous year. Flows into emerging markets equity funds hit a record $7.39 billion during the first full week of January, and it extended their longest inflow streak since a 29-week run ended in mid-December 2010, data from global fund-flow tracker EPFR showed last week. Two of the Sensex constituents scaled at least a 52-week high in Tuesday’s trade, while 15 of them have breached 52-week highs in the last one month.
Five Sensex stocks—Mahindra and Mahindra Ltd, Tata Motors Ltd, Bajaj Auto Ltd, Dr. Reddy’s Laboratories Ltd, and Cipla Ltd have registered a new high in 2013.
Most analysts expect the Reserve Bank of India to cut its policy rate on 29 January when it reviews monetary policy.
The lower cost of money will help Asia’s third largest economy to grow faster. On this hope, bank stocks, considered to be a proxy for the economy, have been rising. Other rate-sensitive stocks, including automobiles, are also moving northwards.
However, the party may not continue uninterrupted and before the market hits a new high, it could pause and consolidate the gains. Rawal of AnandRathi said the current assumption is that the positive developments will stay and the global scene also looks better but in case anything goes wrong, the market will have to digest it and react according to the magnitude of such events.