India's benchmark indexes Sensex and the Nifty hit a fresh seven-month high on Friday as the government's decision yesterday to approve a Rs. 5 hike in the price of diesel and limit supply of subsidized LPG cylinders to six per household in a year increased hopes that the government will push through major reforms to revive the country's ailing economy. Crucial decisions pertaining to disinvestment and opening up foreign direct investment in aviation are expected later today.
The government has shown that it can take hard decisions to contain the fiscal deficit and avert a credit rating downgrade for the country, C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, told a television channel.
It is worth mentioning here that the Reserve Bank of India has been applying pressure on the government to take tough measures before it can drop policy rates. If the government pushes ahead with proposals such as allowing FDI in aviation and disinvestment today, the Reserve Bank of India may come under pressure to cut policy rates in the mid-quarter policy review scheduled on 17th.
A stronger rupee, which hit a new two-and-a-half month high on the back of increased risk appetite and extremely positive global cues in the wake of the Fed's QE3 announcement also aided sentiment to a significant extent, lifting the benchmark BSE Sensex up 443 points or 2.46 percent to 18,464, its biggest single day gain in 10 months.
The broader Nifty index jumped 142 points or 2.62 percent to 5,578, while the BSE mid-cap and small-cap indexes underperformed, rising just 0.9 percent and 0.5 percent, respectively. This is the eighth consecutive day of gains for Indian equities.
High-beta realty, commodity-sensitive metal, banking, capital goods and auto stocks led the rally, while defensive stocks like FMCG sand healthcare lost ground. ITC fell 0.6 percent and Dr Reddy's Laboratories lost 1.6 percent.
IT stocks also underperformed, with TCS down 0.2 percent and Wipro edging up a modest 0.7 percent, after the rupee extended gains to hit a new two-and-a-half month high, shrugging off higher-than-expected August inflation data.
Driven by a sharp increase in fuel and manufactured products, the annual rate of inflation, based on monthly WPI, rose to 7.55 percent in August from 6.87 percent in July, government data showed today. "Controlling inflation has always been a priority for the central bank," RBI deputy governor, KC Chakrabarty said at an event, casting doubt over the timing of rate cuts.
Among the prominent gainers, Jindal Steel, Hindalco, SBI, Reliance Industries, ICICI Bank, Larsen & Toubro, Sterlite, Tata Motors, Maruti Suzuki, Tata Steel and Infosys rose 3-8 percent.
Elsewhere, key benchmark indexes in Australia, Hong Kong, Japan and South Korea rose 1-3 percent after the Federal Reserve announced a $40 billion a month "open-ended" program of mortgage backed security purchases while also committing itself to keep interest rates exceptionally low until at least 2015 to aid U.S. recovery. The Fed, which was under pressure to act amid the sagging economies of Europe and the United States, also said that it would continue easing until the labor market outlook improves "substantially."
Chinese shares underperformed regional markets, with the benchmark Shanghai Composite index rising 0.6 percent, as the Fed's promise to buy mortgage-backed securities raised concerns that inflationary pressure may increase domestically.
European stocks advanced to their highest level in 14 months, commodities rallied and the euro held steady near four-month high versus the dollar, boosted by Fed decision, coming one week after the ECB's pledge to buy bonds of struggling euro zone countries.
For comments and feedback: editorial@rttnews.com