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BW Businessworld

Reforms Cheer Markets; Sensex Touches 14-mth High

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Investors on 21 September cheered big-bang reforms mainly FDI in retail sending the Sensex up by 517 points to a new 14-month high as Samajwadi Party reassured the government of its support on a day Trinamool Congress pulled out of the UPA coalition. While the BSE benchmark index vaulted by 517 points to touch the intra-day high of 18,866.87, it closed the day with a net gain of 403.58 points or 2.2 per cent at 18,752.83 following some profit-booking. Even at the closing level, the Sensex was at 52-week high.

Noting that fears had been created in 1991 when he as finance minister had initiated economic reforms, Prime Minister Manmohan Singh said those behind the scare "did not succeed then" and "they will not succeed now."
In a rare televised address to the nation, Singh justified the recent decisions on FDI and diesel price hike and said the time has come for "hard decisions" and asked the countrymen not to be misled by those trying to confuse them by spreading fear like in 1991.

Underlining that the government was at a "point where we can reverse the slowdown in our growth", he said, "We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose".
 
Shares of domestic retail chains including Pantaloon, Shoppers Stop and Trent, went by up to 8 per cent on hopes that FDI will be pumped in these companies. The 30-share Sensex's gains were on the back of handsome rise in ICICI Bank, L&T, HDFC Bank, RIL, and SBI shares.

Finance minister P. Chidambaram said India would slash a tax on overseas borrowing by local companies and implement a scheme to attract retail investors into stocks, following up on the government's recent big ticket reforms.

The announcement boosted infrastructure stocks such as Larsen & Toubro, which are expected to especially benefit from easier access to overseas funding markets.

After opening 62 points higher on global cues, the BSE benchmark index built on initial gains as foreign funds gushed in with government yesterday notifying its decision to allow FDI in multi-brand retail and aviation sectors, among others.

Power, capital goods and metal stocks led Sensex's rise after the government said withholding tax on overseas borrowings will be slashed to 5 per cent from 20 per cent.

The approval to Rajiv Gandhi Equity Savings Scheme (RGESS) to encourage first-time retail investors to invest in stocks, also lifted the sentiment.

Today's rise was the second biggest single-day gain by Sensex after September 14 this month. Across broader market, over 1,800 stocks closed with gains driving up investor wealth by a whopping Rs 1.27 lakh crore to Rs 65 lakh crore.

The NSE 50-share Nifty index shot up by 136.90, or 2.46 per cent to 5,691.15 after rising to day's high of 5,700.

"Markets ended the week at 52-week highs on the back of a 2 per cent plus gain...FDI in aviation and multi-brand retail were notified without any delay. Concerns about stability of UPA government were also largely addressed," said Dipen Shah, Head of Private Client Group Research, Kotak Securities.

Tax On ECB Cut
Finance minister P. Chidambaram said India would slash a tax on overseas borrowing by local companies and implement a scheme to attract retail investors into stocks, following up on the government's recent big ticket reforms.

The announcement boosted infrastructure stocks such as Larsen & Toubro, which are expected to especially benefit from easier access to overseas funding markets.

Financial companies with insurance units such as Reliance Capital surged on hopes foreign direct investment limits would be increased, while lenders such as State Bank of India gained on hopes additional measures would increase the prospect of interest rate cuts from the central bank.

"Withholding tax cut is a significant thing as it reduces the cost of borrowing for corporates," said Sandip Sabharwal, chief executive officer for portfolio management services at Prabhudas Lilladher.

"Whenever market sentiment improves and outlook on economy improves, normally, financials lead the rally. Excessive allocation to defensives and cash is now getting reallocated," he added.

Global Outlook
On the global front, Asian and European stocks also ended higher on hopes economic stimulus by central banks.

Key benchmark indices from China, Hong Kong, Japan, Singapore, South Korea and Taiwan ended with gains between 0.09-0.70 per cent.

European stocks were also quoting higher in the afternoon trade. The CAC was up by 0.53 per cent, the DAX by 0.31 per cent and the FTSE by 0.50 per cent.

Kishor P Ostwal, CMD, CNI Research Ltd. said, "Market has reacted to SP support to government..."

Out of the 30-share Sensex, 26 counters ended with gains while just 4 finished with losses.

BHEL, Jindal Steel, Sterlite Ind, SBI, ICICI Bank, L&T, Tata Power, Bharti Airtel, Tata Steel, Hindalco, ONGC, HDFC Bank, M&M, GAIL India, NTPC, HDFC, Maruti Suzuki and RIL closed with gains between 2-7 per cent.

Dr Reddy's Lab declined by 1.38 per cent, TCS by 1.38 per cent and Infosys by 0.80 per cent.

On the government's approval to Rajiv Gandhi Equity Savings Scheme, Sanjiv Shah, Co-Chief Executive Officer, Goldman Sachs Asset Management (India) said: "The penetration of investment in equities is very low in India, this initiative will help overcome this."

Among the sectoral indices, the BSE-Power shot up by 4.35 per cent, followed by BSE-CG (4.12 pc), BSE-Metal (4.06 pc), Bankex (4.05 pc), BSE-PSU (2.74 pc), BSE-Realty (2.25 pc) and BSE-Oil&Gas (2.2 pc). BSE-IT, however, eased by 0.68 per cent.

The market breadth turned positive as 1,815 stocks ended higher while 1,102 scrips finished lower. The total turnover rose sharply to Rs 3,000.17 crore from Rs 2,048.27 crore yesterday.

Meanwhile, Foreign Institutional Investors (FIIs) turned net sellers after continued buying for last ten days and sold shares worth Rs 73.67 crore yesterday as per provisional data with stock exchanges.