Mumbai, Sept. 21: The Sensex soared to a new 14-month high today at 18866.87 — recording an intra-day gain of nearly 518 points at one stage — buoyed by a flurry of pronouncements from the government that indicate that the engine for Big Reforms in India has finally sputtered to life.
The bellwether index rose to its highest point since July last year after crucial political and economic developments at the Centre revived investor sentiment.
The market chose to ignore the fallout from the Trinamul Congress’s withdrawal of support to the UPA government and drew its ballast from Thursday evening’s notification relaxing foreign investment rules in multi-brand retail and civil aviation. The rally was ignited further by the government’s decision to slash withholding tax on overseas borrowings to 5 per cent and the notification of the Rajiv Gandhi Equity Savings Scheme.
Investors were also comforted by the Samajwadi Party’s announcement that it would provide outside support to the government, allaying concerns about its stability.
Profit booking at the close of the day took some of the shine off the rally with the Sensex closing at 18752.83, a gain of nearly 403.58 points.
“With the TMC out of the fray, there are hopes that there will not be much resistance to the reform process and that more could be coming. This was one of the key factors that drove stocks higher today,” said an analyst who did not wish to be identified.
The market is now starting to focus on the Union cabinet’s meet next Tuesday when a possible announcement of an increase in the foreign investment limit in the insurance sector from 26 per cent to 49 per cent is expected. It is also cueing in to the agenda for the board meeting of market regulator Sebi, scheduled later this month, with reports suggesting that it could approve a safety net mechanism for retail investors.
There is also the build-up of expectations that the steps taken by the government to increase FDI flows into the country, down 45 per in April-July, and hike diesel prices in an effort to correct the fiscal situation will persuade the RBI to bring down the policy rate at its monetary policy review next month. This was one of the major reasons why banking stocks leapt on the bourses today.
While the shares of domestic retail chains including Pantaloon, Shoppers Stop and Trent rose up to 8 per cent after the government notified FDI in organised retail, the Centre’s move on withholding tax saw the shares of power, metal and infrastructure stocks rising.
“These sectors will be benefited to a large extent as they are major borrowers of overseas funds,” the analyst said.
Market expert Ambareesh Baliga said one of the factors that propelled today’s rise was the government’s decision to stand firm on reforms despite political pressure to back down.
Baliga, who expected the Nifty to touch 5850 to 5900 levels, added that most of the negatives relating to India like high interest rates and inflation have already been factored into stock prices. “What was not priced in was the fact that the government can announce reform measures. This is beginning to get priced in now,” he added.
Market circles added that foreign investors were big buyers of stocks today. Provisional data from the stock exchanges showed that they bought over Rs 2,300 crore of shares.
Commenting on the government’s approval for the Rajiv Gandhi Equity Savings Scheme, Sanjiv Shah, co-chief executive officer at Goldman Sachs Asset Management (India) said: “The penetration of investment in equities is very low in India. This initiative will help overcome this.”