Mumbai: In anticipation of a rate cut by the US Federal Reserve on Wednesday, which could increase flows of foreign funds into India, the Sensex, the benchmark index of the Bombay Stock Exchange, crossed the 20,000 mark on Monday in intra-day trade. It rose to a peak of 20,024.8 points before ending at a new high of 19,977.67 (3.8% or 734.50 points higher than Friday’s close).
“We expect the Fed to announce a quarter point cut in key interest rate during this meet,” said Mark Cliffe, chief economist of ING Group, a global financial services firm. This cut “could further drive the huge outflow of money from US to emerging markets”, he said, adding that India is perceived as a stronger growth market than many other emerging markets by institutional investors in developed countries.
India witnessed the largest capital inflows among all emerging markets after Fed announced a 50 basis-point (bps) cut in its benchmark inter-bank Federal funds rate to 4.75% on 18 September, in an effort to bail out the country’s equity markets from a credit crunch resulting from the mortgage crisis.
HIGH POINTS (Graphic)
TOP 10 LEAPS (Graphic)
Foreign institutional investors have invested more than $8 billion (about Rs32,000 crore then) in India between 18 September and 16 October, when the Indian capital market regulator Sebi (Securities and Exchange Board of India) released a report on policy proposals to curb anonymous capital inflows through popular instruments known as participatory notes (PNs).
On Monday, stock market indices in all major emerging markets in Asia gained between 1.3% and 3.89%, taking their cue from the Dow Jones Industrial Average’s performance on Friday, when it ended 134.78 points up at 13,806.7. Hong Kong’s Hang Seng index was the largest gainer, up 3.9%; China’s Shanghai index gained about 2.8%. At India’s National Stock Exchange, the Nifty gained 203 points, or 3.5%, to close at 5,905.9.
The benchmark indices of markets in China and Hong Kong have beaten the Sensex in terms of growth since the beginning of this year. While the Chinese index gained more than 114%, the Hang Seng rose about 58%. The Sensex has gained?around?44%?this year till date, the third highest in Asia.
In the currency market, the rupee rose close to a nine-and-a-half year high on Monday morning as the dollar weakened against most major currencies. In early morning trade, the partially convertible rupee touched 39.35, moving close to the 39.27 it had traded at earlier this month.
The rupee has taken its cue from the stock market, said Harihar Krishnamurthy, head of treasury at Development Credit Bank Ltd. “Rupee’s stre-ngth in India reflects the global weakness in dollar value.”
However, the rupee shed early gains and closed at 39.420/39.430 a dollar, virtually the same as Friday’s close. An economist at Indian Bank, who did not wish to be identified, said this was due to intervention from the Reserve Bank of India (RBI).
RBI is scheduled to meet on Tuesday to review its credit policy. However, this may not have a large impact on Indian equity markets as “a large majority of investors expect no change in interest rates”, said Sriram Jagadeesh, an analyst at Mumbai’s ICICI Securities Ltd. “The markets (on the other hand), have already discounted a 25 bps cut in interest rates in the US,” he said.
It took about 20 years for the Sensex to gain 10,000 points, but it needed hardly 20 months to add another 10,000. Its has almost doubled since 6 February 2007; but this growth is low when compared to that of the Chinese index, which gained more than 100% each in 2006 and (thus far in) 2007.
“It is a global rally in equity markets. India is only a participant,” said Shankar Sharma, director and equity strategist of Mumbai-based broking firm First Global Securities Ltd. “Domestic buying, especially from mutual funds and other entities, has also gone up significantly,” he added, in anticipation of the market gaining more in the short-term.
(Anup Roy contributed to this story.)