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Stocks in double bubble, needle in Nitish’s hand

Dec. 9: The Nifty has conspired with the sensex to whip up a double bubble, though Nitish has unsheathed a needle.

The two stock market indices today leaped to their all-time highs, apparently underpinned by a perception that the Assembly poll results have added momentum to Narendra Modi’s run for Delhi.

The sensex vaulted to a new peak of 21483.74 in morning trade — a surge of 487.21 points — that sent it racing past the November 3 level of 21321.53. Investors quickly scooped some of the gains off the table that saw the index dip to 21326.42 — still a new closing high.

The 50-share Nifty of the National Stock Exchange gained 104 points to a record close of 6363.90 after hitting a day’s high of 6415.25.

It is rare to see the two indices clamber to new peaks on the same day. One reason for this is that the sensex has only 30 stocks while the Nifty has 50. The two indices assign different weightages to the constituents, which makes a tandem surge to new heights infrequent.

A note not in tandem with the markets was struck in Patna. “There was no Modi wave. It was an anti-Congress wave,” Bihar chief minister Nitish Kumar said.

Nitish, who had broken away from the NDA over Modi, added: “Since there was no alternative to the Congress other than the BJP in Madhya Pradesh, Rajasthan and Chhattisgarh, the BJP won. But in Delhi, where AAP (Aam Aadmi Party) was a third option, the BJP failed to form the government despite the profound anti-Congress environment.”

But the very prospect of a change of government in 2014 appears to have spread cheer on the markets. The rupee also climbed to a four-month high.

The perceived wisdom in the market was to start buying stocks but with a little care. “Markets tend to do well ahead of elections. In five of the last six elections, investors buying six months before elections and selling on the day before results would have seen positive returns. The average return has been 15 per cent,” wrote Bank of America Merrill Lynch analysts Jyotivardan Jaipuria and Anand Kumar.

Some analysts cited another possible reason for the surge. Foreign brokerage Nomura said that while the BJP was considered pro-business and reform-oriented, “the fact that runaway spending by the ruling party has not won any votes could be taken as a very positive signal by the markets in terms of voter preference for the kind of policy favoured by the electorate”.

Analysts are, however, divided on whether the wild celebrations will last. While some predict the sensex will soar to 24,000 (and the Nifty to 7000) before the general election, others are not as bullish.

They feel that the market’s attention will now shift to the US where the Federal Reserve has been poring over economic data to decide when to taper its $85-billion-a-month bond-buying programme.

The RBI is due to make its mid-quarter review of the monetary policy on December 18 when it may decide to raise interest rates again to quell retail inflation which has been running above 10 per cent.