Sensex at 14-month high; rupee also up

The Sensex rose 2.3% to 18,441.16, its highest level since 26 July 2011
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First Published: Fri, Sep 14 2012. 09 29 AM IST
The BSE benchmark index rose more than 2% on Friday. Photo: Abhijit Bhatlekar/ Mint
The BSE benchmark index rose more than 2% on Friday. Photo: Abhijit Bhatlekar/ Mint
Updated: Sat, Sep 15 2012. 12 21 AM IST
Mumbai: Indian stocks rose for the eighth straight session on Friday, propelling the BSE bellwether to a 14-month high, joining a global rally sparked by the US Federal Reserve’s (Fed) bond-buying plan and spurred by government moves to reduce its subsidy bill that kick-started dormant economic reforms.
The 30-share Sensex rose 2.5% to 18,464.27 points, its highest close since 26 July 2011. The broader Nifty index of the National Stock Exchange gained 142.30 points, or 2.62%, to end the day at 5,577.65. The rupee also gained.
Market participants expect the gains to be extended on government moves after market hours on Friday to open up multi-brand retail to foreign direct investment and allow overseas airlines to buy stakes in domestic carriers. On Thursday, the government had raised the diesel price by Rs.5 per litre and limited the supply of subsidized cooking gas to six cylinders per household per year, in moves expected to save it Rs.20,300 crore.
“Considering the liquidity in the global markets, there are high chances that we could be seeing Sensex levels of close to 19,000 or probably higher in the short term,” said Vishal Jajoo, a senior research analyst at Nirmal Bang Securities Pvt. Ltd.
World markets rallied after the Fed committed itself to purchasing $40 billion (Rs.2 trillion) of mortgage debt a month and keep interest rates low into 2015 to lift growth and create jobs in the world’s largest economy.
After the Dow Jones Industrial Average gained 1.55% overnight post the Fed announcement, Indian indices galloped as investors bet on quicker policy reforms following the diesel price hike. While the Sensex is up 19.47% in the year so far, the Nifty has gained 20.62%, driven up by $12.83 billion of foreign investment inflows.
Rising stocks outpaced declining ones on BSE 1,497 to 1,420. Shares of rate-sensitive firms and capital-intensive companies were back in preference with Jindal Steel and Power Ltd (up 8.83% at Rs.372.25), Hindalco Industries Ltd (up 8% at Rs.118.10), State Bank of India (up 5.52% at Rs.1,970.55) and Reliance Industries Ltd (up 5.35% at Rs.840.95) topping the gainers among Sensex stocks.
The rupee, too, which had hit an all-time low of 57.30 to a dollar in June, rose to a two-and-a-half month high of 54.30, taking cues from its Asian peers and the strong equity market. The Malaysian ringgit and Thai baht hit four-month highs as Asian stocks posted their biggest weekly advance in 2012, according to Bloomberg.
Traders said exporters were selling dollars in the market in large quantities and the trend is expected to continue in the coming days.
“The directional movement of rupee is not surprising, given the diesel price hike, third round of quantitative easing and prior announcement of mortgage-backed security buy-back of the European Central Bank,” said Harihar Krishnamoorthy, head of treasury at FirstRand Bank.
According to an Edelweiss Capital research note, the government’s fuel price hike and the Fed’s third round of quantitative easing are bold measures. “More broadly, the government undertaking a tough political decision sends a strong signal that it is concerned about the worsening macro environment,” it said.
Foreign institutional investors, the key drivers of Indian equities, bought stocks worth a net $73.51 million on Friday, according to provisional data available on NSE website. They have bought stocks worth $12.83 billion, net of sales, in the calendar year so far.
With policy reforms kicking off, worries of a possible downgrade of India’s credit rating to junk by Standard and Poor’s and Fitch Ratings seem to be easing. A downgrade has the potential to trigger an exodus of foreign funds from the country, besides raising the cost of capital for Indian firms.
“There is renewed enthusiasm in the market that the government is now serious about reforms and these moves together will manage to keep the rating agencies at bay from issuing their threats on downgrading the sovereign’s rating,” Krishnamoorthy of FirstRand Bank said.
“Equity markets hopefully will be conducive enough for a disinvestment of at least Rs.20,000 crore, and if that happens, the rupee will strengthen considerably,” he added.
According to India’s stock market regulator, as many as 181 companies from the private sector, too, will need to sell shares worth about Rs.27,000 crore before June next year to meet the minimum public holding norms for listed firms.
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First Published: Fri, Sep 14 2012. 09 29 AM IST
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