Mumbai: India’s key equity indices recorded their third biggest single-day gain in 2012 on Friday and the rupee marked its biggest gain against the dollar since May 2009, as local and global investors reacted positively to European leaders easing debt repayment rules for Spain and global investment bank Morgan Stanley upgrading Indian stocks to “equal weight” from “under weight”.
The rupee gained against the dollar on Friday, having weakened against it by 6.39% this year as of Thursday’s close, on expectations of higher foreign funds inflow after the draft guidelines on general anti-avoidance rules (GAAR) were released late on Thursday. These said the tax evasion rule will be invoked only above a certain income threshold on foreign investors benefiting from tax avoidance treaties.
Foreign institutional investors (FIIs), the key drivers of Indian stocks, bought stocks worth a net Rs 3,046.76 crore on Friday, while domestic institutions sold shares worth Rs 250.71 crore, net of sales, according to the provisional data on the National Stock Exchange (NSE) website.
Sensex at closing
Petrol prices were cut by Rs 2.46 per litre on Thursday, the second reduction in a month, boosting investor sentiments further.
The Indian rupee surged against the dollar to close at 55.64, up 2%, after opening at 56.61 in the morning, according to Clearing Corp. of India Ltd data.
Both indices rocketed up on Friday after euro zone leaders agreed to take strong action to deal with the debt crisis. Mint’s Lisa Pallavi Barbora and Krishna Merchant give you the low down.
The benchmark index of the BSE, the Sensex, jumped 439.22 points, or 2.59%, to end the day at 17,429.98 points.
In absolute terms, this is the biggest single-day gain for the Sensex in 2012, but the third biggest in percentage terms.
The broader Nifty of the NSE rose 129.75 points, or 2.52%, to 5,278.90 points.
Both indices are now above their 200-day moving average, a key level watched by traders.
“If there is stability in the euro zone and this news flow is any precursor to that, then there could be a respectable bout of liquidity that flows back into global equities. However, we would reserve our optimism till we see further concrete evidence on how the euro zone is progressing,” said Rahul Arora, chief executive, institutional equities, Nirmal Bang Equities Pvt. Ltd.
All major global equity indices gained on Friday. While Japan’s Nikkei rose 1.5%, Hong Kong’s Hang Seng index was up 2.19%.
“In India, the concerns on current account deficit (and thereby the rupee), the fiscal deficit, high inflation and interest rates and lack of policy reform announcements remain impediments to any domestic news flow driven rally,” Arora said. “We maintain our cautious stance on the market for the moment.”
The rupee has dropped 8.6% this quarter, the biggest loss since the three months through September 2011 and the worst performance among Asian currencies, touching a record low of 57.3275 against the dollar on 22 June, according to Bloomberg data.
Traders said the optimism in the stock market also supported the rupee, bolstered by improving sentiment in the domestic market and backed by expectations that critical reforms will get a boost with Prime Minister Manmohan Singh taking over the finance portfolio.
Sentiments have clearly improved in the local money markets as investors now expect credible measures by the government to boost capital flows and bring about fiscal consolidation in the economy, said Moses Harding, head of research at IndusInd Bank Ltd.
Besides, there is an expectation that the Reserve Bank of India will henceforth shift its policy focus to support growth, given that inflationary pressures have begun to ease.
“The rupee is likely to go back to 54.92 against the dollar in the next few sessions. Now the feeling is that the disappointment caused by the budget and recent monetary policy will be addressed to encourage more investments and support growth,” Harding said. “There is a hope that government will be serious to bring down its subsidy burden and move towards the fiscal consolidation path.”
All BSE sectoral indices ended higher, with consumer goods leading the pack (up 3.65%), followed by rate-sensitive sectors such as power (up 3.55%) and banks (up 3.49%). The market breadth was robust, with 1,864 stocks advancing on the BSE against 988 declines. As many as 32 stocks recorded their all-time highs on the BSE.
Derivative action on the NSE showed traders are betting that the Nifty will not fall below 5,200 levels. Nifty July 5,200 calls added 2.28 million new contracts—the highest in open interest addition.
The biggest gainer in the Sensex pack was Jindal Steel and Power Ltd, up 8.74% to Rs 469.50, followed by Tata Power Co. Ltd, which rose 5.81% to Rs 104.70, and ICICI Bank Ltd, which advanced 5.03% to Rs 899.60.