Sensex hits new peak on budget optimism
Jul 02 2014 , Mumbai
Metal, power, capital goods stocks drive rally
There was brisk buying by both domestic and foreign investors amid growing optimism that the Narendra Modi government would unveil strong measures in next week’s budget to put government finances in order and the economy back on track.
Finance minister Arun Jaitley on Tuesday indicated that the government would take bold measures, discard populism to cut wasteful expenditure and follow reasonable tax policies to revive growth.
The bellwether indices on both the bourses ended at their all-time closing highs. The S&P BSE Sensex rallied 1.36 per cent to touch an all-time high of 25,864 in intra-day trade but closed slightly lower at 25,841, up 324 points.
The NSE Nifty gained 97.7 points, or 1.28 per cent, to hit 7,732 before closing at 7,725, up 90.45 points. The rally was driven mainly by metals, power, capital goods and auto stocks. “It looks like the market is seeing a pre-budget rally,” said Andrew Holland, CEO of Ambit Investment Advisors.
“This is the first budget of the government, so the expectations are high. Everybody is hoping that the government will deliver. The current momentum is driven by liquidity from both foreign and domestic investors,” he said.
The rally was broadbased: the BSE metal index rose 2.01 per cent, power index 1.93 per cent, healthcare index 1.88 per cent, capital goods index 1.67 per cent and auto index 1.42 per cent.
Holland said the budget could demarcate policy direction of the NDA government, which was what the stock market was betting on.
“We are a bit ahead in the terms of valuations, which can create short-term volatility,” he said.
Some analysts said brisk buying in midcap and smallcap stocks indicated that retail investors were back on the Street. “The market rally so far has been driven mainly by foreign funds, but we now see domestic investors coming in,” said an analyst with a leading broking house.
Foreign institutional investors (FIIs) invested about Rs 1,290 crore in equities in Wednesday’s trade and Rs 59,500 crore so far this year.
Major Sensex gainers included Sesa Sterlite (up 4.44 per cent), NTPC (3.00 per cent), BHEL (2.75 per cent), HDFC (2.71 per cent), Maruti Suzuki (2.25 per cent), Coal India (2.25 per cent), Sun Pharma (2.14 per cent) and M&M (2.06 per cent).
Vikram Dhawan, director of Equentis Capital, a UK-based Investment Advisory firm, said the market had been rising over the past few days on expectations of real reforms. “The uncertainty over monsoon rains and crude price is receding. Global indices like Dow are at their all-time highs and equities have become the flavour across the world. This is getting reflected in Indian equities too,” he said.
Dhawan, however, warned that there could be disappointments in terms of timeline for a turnaround in the economy, as it is still fragile on the macro front.
Ambit’s Holland, too, sounded a note of caution. “Everybody seems to be riding the tide, ignoring macro issues like poor rains, high inflation, especially rising food prices. The long-term picture looks good though,” he said.
Foreign broking firm CLSA on Wednesday said there was a 43 per cent deficiency in June rainfall and the country might face a potential drought if monsoon failed to pick up. Poor monsoon could impact GDP growth adversely, the brokerage warned.
“Mid-July could be a turning point for the market, as the budget will out and we will get an idea on the progress of monsoon. We could then see strong volatility based on news flow,” said Dhawan.