The Telegraph
Since 1st March, 1999
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Sensex 5000 before polls in 5
- Cheer on economic front for election-bound govt

Mumbai, Nov. 3: Atal Bihari Vajpayee could not have found a more auspicious note to enter an election month.

The stock market whooped with joy as the sensitive index — the 30-stock barometer of the market’s mood — roared past the 5000-mark today after 42 months. The market has been agog over the past few weeks waiting to see the sensex vault past the psychological mark.

Today, the sensex surged by 3.18 per cent (or 156 points) to close at 5063.03 points. Not since April 13, 2000, has it closed above the 5000-mark.

“It was expected,” said Ramesh Damani, a leading Bombay Stock Exchange broker. “The 5000-mark is not only a brand new number but an extremely important psychological barrier for the stock market.”

The market had gone into a two-year depression after a scam in February-March 2000. But this year, the sensex has gained almost 50 per cent, inching its way up from around 2900 in April.

Whether strong economic numbers will pull votes for the BJP-led coalition in the five states where polling kicks off at the end of the month is debatable, but the warmth of a 5000 sensex is better than the chill of an onion crisis.

The good news does not end there. In its credit policy today, the Reserve Bank forecast a 6.5-7 per cent economic growth in the financial year ending March 2004. The figure stands revised from the prediction of 6 per cent made in April, since when, incidentally, the stock market also began the climb up to 5000.

“The surge in the sensex reflects that the RBI’s monetary policy has been received well by the markets,” said Ashok Lahiri, chief economic adviser to the government.

But the fact is there was not much of a policy as the central bank decided that when things appear to be going well it’s best not to tinker, particularly with elections round the corner, as critics might say.

Although the RBI kept up the rhetoric for soft interest rates, it did not lower its own indicative instrument — the bank rate. Nor did it pump fresh money into the economy.

It’s forecast for the inflation rate is also upbeat, a revision from 5-5.5 per cent to 4-4.5 per cent.

Stock prices are riding the crest of a roller-coaster on the back of strong corporate results in the second quarter of this financial year. The boom has been fuelled by disparate sectors — from smokestack industries like cement, and iron and steel to automobiles and information technology, all of which have outperformed expectations.

“A lot of things have clearly changed. The structural changes within the economy with interest rates and taxation rates softening is a heady cocktail for the stock market,” said Damani.

“Companies have come out with their best performances this quarter and, looking forward, it is expected that the third and fourth quarters will be still better,” an analyst said.

The effect of a good monsoon will be felt in the coming months, he added.

“It is a very good boost for market sentiments,” said Ajit R. Singhvi of MSS Securities, an institutional brokerage. “The market is moving up because of high trading volumes. However, the rise today was seen more in index-based stocks and was not widespread.”

This time the rally has been fuelled by foreign investors, unlike in the past when operators with backing from dubious resources got the gravy train going.

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