Mumbai, Sept. 14: The Centre’s decision to raise diesel prices and restrict the supply of subsidised LPG cylinders may have hurt the aam aadmi hard but not the aam investor.
The Sensex sizzled on Friday, soaring 443 points to a 14-month high of 18464.27 — the biggest single-day gain this year. And as a result, investor wealth swelled Rs 1 trillion to Rs 63.63 trillion on the bourses.
The bounce was triggered by the tough decisions taken by the Centre and US Federal Reserve’s move to kick-start a stuttering American economy with its third stimulus package.
The rally was so strong that investors overlooked higher inflation numbers for August that dampened hopes of an interest rate cut from the RBI on Monday.
Buoyed by tough decisions announced by the government on Thursday and the third round of quantitative easing by the US Federal Reserve, the Sensex opened on a strong note at 18284.75 and built up on the gains as the day progressed. The Federal Reserve’s decision to buy mortgage-backed debt will funnel more money into risky assets such as stocks and gold.
The buying support came also on hopes that the Centre may announce more measures to catalyse foreign investments. Soon the 30-share Sensex touched a high of 18498.54 and ended at 18464.27, a gain of 443.11 points, or 2.46 per cent.
This optimism bore fruit later when the UPA government, which has been reviled for its policy inaction, decided to allow foreign direct investment in multi-brand retail and lifted restrictions on foreign airlines’ investment in Indian carriers.
Experts are of the view that these measures will turbo-charge stocks over the next few days. However, the markets will be waiting to see whether the government buckles under pressure from its allies and rolls back some of these bold measures.
“The Sensex rallied today in response to the government’s first major move to curb fiscal deficit by raising diesel price and announcement of economic stimulus by the Federal Reserve. The markets would now be focused on the RBI’s monetary policy meet on Monday and the government reform measures to be announced today. Post the run-up, valuations are in a fair zone but liquidity support may keep the market momentum going in the near-term,” said Sanjeev Zarbade, vice-president (private client group research), Kotak Securities.
On a day when most of the indices ended in the green, defensives such as pharmaceuticals and FMCG witnessed profit booking. The gainers’ list was led by rate-sensitive stocks such as realty on hopes of some relaxation from the central bank on September 17.
In the past, the RBI has said its actions on rates will also depend on what steps the Centre takes with regard to fiscal consolidation. Though inflation for August at 7.55 per cent disappointed some as hopes of a cut from the RBI receded, market circles said the positive mood saw banking, realty and infrastructure stocks ending in the green.
The benchmark index received further support as heavyweights like Reliance Industries Ltd recorded strong gains. The oil giant surged 5.35 per cent to Rs 840.95. Investors also swarmed to the metals counter on expectations that commodity prices may rally as a fallout of the third round of quantitative easing in the US.