For the first time in the history of the Indian stock market, trading was halted for the full day on both the Bombay and the National Stock Exchanges after the benchmark indices on the BSE and the NSE hit two upper circuit limits due to optimism about poll results.
Initially, trading was suspended for two hours within seconds of the opening of the market after the BSE Sensex surged up by over 10% and the S&P CNX Nifty by over 14%. Thereafter, as the benchmarks continued their surge after the resumption of trading at 1155 hours, the authorities decided to suspend trading for the whole day. At the time of closing, the BSE Sensex was locked at 14,273, up 2,099 points or 17.24% and the S&P CNX Nifty rose 636 points or 17.33% to 4,308 before closing for the day. Trading turnover in the cash and the F&O segments was Rs.3, 103 crore.
Among the sector indexes on the BSE, the realty index was the biggest gainer with a 25.37% surge, followed by the capital goods index (up 23.47%), banking (20.27%), oil & gas (up 19.57%) and the power index (17.09%). The power index surged up 17.09%, the metal index soared 16.64% and the PSU index, which represents state-owned companies jumped 15.76%. The FMCG index with a 6.78% gain and healthcare stocks, which rose 8.04% on an average, underperformed the broader market.
All the 30 Sensex stocks closed with huge gains. Among the major gainers, BHEL surged up 33%, Larsen & Toubro climbed 30%, DLF soared 26%, ICICI Bank jumped 25% and HDFC rallied 23%.
In the small-cap segment, prominent stocks such as SREI Infra, Dredging Corp, Sanghvi Motor, Jyoti Structures, Gammon India, Swaraj Engines and Prism Cement ended more than 20% each.
In the mid-cap category, Indiabulls Real Estate (up 38.51%), IVRCL Infra (up 38.32%), IFCI (up 31.14%), GVK Power (up 27.89%), India Infoline (up 27.19%), Hindustan Construction (up 25%) and Aban Offshore (up 24.43%) were the top gainers.
Investors were particularly impressed with the thumping majority given to the outgoing UPA government. As the victory sets the stage for the Congress led UPA to pursue its economic reforms, many expect fresh money from all kinds of investors to make its way into Indian stock market. The new government, which is expected to be sworn in by Friday, will come out with a full budget within 45 days of resuming office.
Investors have big hopes on disinvestments in public-sector undertakings. In the last 5 years, the government couldn't initiate its disinvestments plans because of the opposition from the Left. The outgoing UPA government raised only about Rs.8, 500 crore compared to Rs.28, 000 crore raised under the preceding NDA regime. Now that the UPA has got a decisive mandate, investors expect faster decisions and less time- lag on disinvestments.
According to the Congress manifesto, the Indian National Congress doesn't believe in blind privatization and wants to retain a majority shareholding. Public sector enterprises in the manufacturing sector (like energy, transport and telecom) and in the financial sector (like banks and insurance companies) will remain in the public sector and will be given all support to grow and become competitive, the manifesto says.
Given the need to clean up the fiscal deficit and raise resources for developmental activities, many believe that disinvestments in public sector banks may probably take-off this year. Improved stock market conditions and further optimism about an upturn in the economy may help state-owned companies get a good response. While firms such as NHPC, RITES and OIL India, which have already got regulatory approval to list shares, may get listed in a couple of months, listing and disinvestment in many other companies may follow with a considerable time lag.
There are 217 state-owned companies and 156 of them are making profits. The government holds a significant 85% stake in many of these companies, which include, Rashtriya Ispat Nigam, MMTC, NMDC, Hindustan Copper, Neyvelli Lignite, Power Finance Corporation and Indian Oil Corporation. A minimum 10% disinvestment in these companies could fetch significant amounts and can improve the corporate governance of these government -owned companies.
Besides disinvestment, the government may fast track the unfinished agenda of tax reforms like GST and reforms in the energy sector. The government is likely to accord high priority to the passage of bills in the pension, insurance and banking sectors. Infrastructure development and reforms in the education and the retail sector may also be on the priority list.
Commenting on the market surge, the Finance Secretary Ashok Chawla said, "It is widely believed that the response in the market place is going to be favorable. It is not surprising, not unusual," he told newspersons.
While many believe that the market is poised to move sharply up in the next few months, intermittent profit taking cannot be ruled out. Nothing has changed overnight except for the perception about the new government.
In the near term, domestic financial institutions and foreign funds may take significant amount of profits before they get back to investing aggressively. However, investors who have already invested significant amounts of money in the past two months may hold on to their investments. Due to the change in sentiment and improved outlook for the domestic economy, the Indian market is likely to outperform the other emerging markets over the next 12 months. Given their under performance in the recent rally, second-line stocks may outperform large-caps in the short term.
Else where in Asia, the markets traded weak on Monday on concerns over a sharp drop in earnings, the spread of the swine flu, lower crude oil prices and a stronger yen.
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