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Business News/ Market / Stock-market-news/  Is the feel-good factor back?
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Is the feel-good factor back?

Investors on the stock exchange bet that RBI, in its monetary policy review, will strike a balance between need to cool inflation and lift economic growth

BSE Sensex on Monday posted biggest daily gain in three weeks, ahead of RBI’s monetary policy review. Photo: Hindustan TimesPremium
BSE Sensex on Monday posted biggest daily gain in three weeks, ahead of RBI’s monetary policy review. Photo: Hindustan Times

Mumbai: Key stock indices surged on Monday as investors cheered early indications of policy changes likely under the new government and bet that the Reserve Bank of India (RBI), in its monetary policy review, will strike a balance between the need to cool inflation and lift economic growth that has slumped below 5% for two years in a row.

The S&P BSE Sensex gained 467.51 points, or 1.93%, in high-volume trading to close at 24,684.85 points. The National Stock Exchange’s Nifty ended at 7,362.5, up 132.55 points, or 1.83%.

An increase in diesel prices on the weekend was seen as a statement of the government’s continued resolve to lower subsidies, sending shares of oil marketing companies higher. Media reports that the government was contemplating raising the foreign direct investment (FDI) limit in insurance from the current 26% also buoyed sentiment.

“Just a glimpse of the likely actions by the new government in the form of FDI hike in insurance and talk of clearing a few large projects got the ball rolling for the market," said Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services Ltd.

The rupee ended at 59.16 to the dollar, down 0.09% from its previous close. The local currency opened lower at 59.28 per dollar against Friday’s close of 59.1025.

In its monetary policy review on Tuesday, RBI is expected to leave key policy rates unchanged, but some analysts said the central bank may temper its single-minded focus on controlling inflation with a statement on the need to balance growth and inflation concerns in a conciliatory gesture to the Narendra Modi government.

Data released on Friday showed gross domestic product (GDP) grew by an anaemic 4.7% in the year ended 31 March, compared with 4.5% in the previous year.

“Tomorrow will be the first policy under the Modi government, and we are not expecting any negative surprises," said Suresh Parmar, head of institutional equities at KJMC Capital Markets.

Bank shares rose on Monday on a Bloomberg report, citing an unnamed official, that the administration of Prime Minister Modi was seriously working on creating a holding company that will be the repository of government equity in all state-run banks, pushing the shares of such banks sharply higher. Such a move may help banks raise capital.

Shares of State Bank of India rose 4.02% to 2644.20. IDBI Bank Ltd was up 5.24% to 98.35. Bank of Baroda rose 3.75%, Canara Bank advanced 6.18%, United Bank of India gained 3.07% and Dena Bank was up 4.81%. Indian Overseas Bank shares gained 9.26%, Vijaya Bank rose 5.39%, Central Bank of India advanced 11.05% and Punjab National Bank ended 3.67% higher.

The hike in diesel prices boosted shares of oil marketing companies such as Hindustan Petroleum Corp. Ltd, which rose 5.59% to close at 423.30. Bharat Petroleum Corp. Ltd ended at 555.45, up 6.5%

Investors remain hopeful that the new government will keep a check on expenditure and focus on fiscal consolidation. India’s fiscal deficit in fiscal year 2014 was 5.08 trillion, or 4.5% of GDP, government data showed on Friday. On Sunday, finance minister Arun Jaitley indicated that tough measures are needed to control India’s fiscal deficit ahead of his first budget scheduled to be presented in the first week of July.

“Early signs from the government are positive, and on expected lines," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

“Our positive stance on the market continues; at the same a near-term breather, after the initial euphoria, which is the usual market behaviour, is not ruled out," Chhaochharia added.

Foreign institutional investors (FIIs), remain the key drivers of Indian equities and pumped in a net of $2.8 billion in the equity markets last month—the highest since March 2014. For the year to date, the BSE Sensex has gained 16.6%, while FIIs have bought $7.55 billion from local equity markets.

To be sure, FIIs were net sellers in six of eight sessions to 30 May, data from Securities and Exchange Board of India show, and market experts say it is just profit-booking after the strong run-up, and the market fundamentals remain strong.

Market activity seems to have increased across the board as is evident from a surge in market-wide turnover, which has more than doubled since the election results were announced on 16 May. The average daily turnover since 16 May has risen to 307,427.37 crore, a 130% increase over the turnover seen in the first fortnight of the month.

The level of interest and confidence in the market has increased after election mandate," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd. He said investors were focusing on stocks linked to the prospects of a domestic recovery, as compared to export-centric stocks that benefited from a global recovery and the rupee’s depreciation in the past year.

“This realignment is leading to a churn in portfolios, and that is further contributing to the rise in turnover," said Sanghavi.

In Monday’s trading, the S&P BSE Capital Goods index was the top sectoral gainer with a 4.93% rise. It was followed by BSE Bankex, Oil, Power and Metal indices, which were up 3.28%, 2.85%, 2.38% and 1.86% respectively. The S&P BSE Healthcare and FMCG (fast moving consumer goods) indices were the top sectoral losers, down 0.92% and 0.82% respectively.

ami.s@livemint.com

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Published: 03 Jun 2014, 12:09 AM IST
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