Sensex soars on reform hopes; distinctly outperforms global peers

Stock markets in India showed a stupendous performance on Thursday with the benchmark equity indices vehemently rallying by close to two percent, registering the highest intraday gain seen since March 30. The key gauges showed a remarkable bounce back after drifting into the negative territory for a brief period in early trades and halted the two session declining streak, recovering all the losses they suffered in last two sessions.

The session was also marred by volatility as the rally seemed to be fizzling out when investors started booking partial profits around the psychological 16,200 (Sensex) and 4,900 (Nifty) levels in early afternoon trades. However, sanguinity prevailed at the end as encouraging developments from domestic front along with rally in European peers helped the local markets to snap the session at the highpoint of the day.

Sentiments got buttressed in the session amid speculations that Reserve Bank of India took measures to rein the depreciating run of the beleaguered Indian currency, which recovered from the day’s lows it hit earlier in the session. Besides, the government’s decision to hike prices of petrol overnight by as high as Rs 7.50 per litre instilled some hopes among market participants that the government would now take certain bold steps to lift sentiments in the markets.

Reports showed that government is now looking at bringing reforms back on track by cajoling key allies and addressing their concerns on foreign direct investment (FDI) in multi-brand retail and aviation soon. Stocks from the Oil & Gas pocket rallied fervently in the session with the upstream ONGC shooting up by about six percent amid expectations that government may soon hike diesel prices as well.

However, downstream oil marketing PSUs which showed strength early in the session failed to sustain the momentum and shares of companies like HPCL and IOC plunged by around a percent. Meanwhile, investors were also seen piling up positions across the board with the rate sensitive Bankex index being the top gainer with over two percent gains. Though there were no laggards in BSE’s sectoral space, however some individual names like Maruti Suzuki, TCS and BHEL languished in the negative terrain.

On the global front, sentiments in Asian markets remained cautious since the start of trade. Market participants lacked conviction to open fresh bets as European leaders overnight failed to carve out a concrete decision to resolve the region’s onerous debt crisis. While the leaders called on Greece to stay in the single currency union and stick with the budget cuts, they also advised to prepare contingency plans in case Greece quits the single currency area.

The European market got off to a mixed opening as markets in London and Germany surged over a percent in early trades, while the benchmark in France sank lower after reports showed that manufacturing PMI in Euro-zone’s second largest economy fell to the lowest levels not seen in last three years. However, the French markets too recovered after the initial jolt and displayed optimistic trend.

The NSE’s 50-share broadly followed index - Nifty garnered triple digit gains to settle above the psychological 4,900 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed over two hundred and fifty points to finish above the crucial 16,200 mark.

Moreover, the broader markets relatively underperformed their larger peers as they finished with gains of around three fourth of a percent. The markets jumped on strong volumes while the market breadth remained optimistic as there were 1,544 shares on the gaining side against 1,140 shares on the losing side while 126 shares remained unchanged.

Finally, the BSE Sensex surged 274.20 points or 1.72% to settle at 16,222.30, while the S&P CNX Nifty climbed by 85.75 points or 1.77% to close at 4,921.40.

The BSE Sensex touched a high and a low of 16,252.37 and 15,934.77 respectively. The BSE Mid cap and Small cap indices were up by 0.76% and 0.75% respectively.

The major gainers on the Sensex were ONGC up by 5.74%, Bharti Airtel up by 5.62%, HDFC up by 4.38%, Jindal Steel up by 3.46% and HDFC Bank up by 3.06%, while Maruti Suzuki down by 0.53%, TCS down by 0.34%, BHEL down by 0.26%, Sun Pharma down by 0.25% and Hindustan Unilever down by 0.22% were the major losers on the index.

The top gainers on the BSE sectoral space were Bankex up by 2.33%, Oil & Gas up by 1.98%, TECk up by 1.49%, Metal up by 1.36% and PSU up by 1.24%, while there was no loser on the BSE sectoral space.

Meanwhile, petrol prices have been raised by a whopping Rs 7.54 litre with effect from May 24, taking the prices of petrol to Rs 73.14 a litre in the national capital. Following the hike, a litre of petrol will now cost Rs 78.16 in Mumbai, Rs 77.53 in Kolkata and Rs 77.05 in Chennai. This is the first hike in the last six months and has been necessitated due to the increase in prices of global crude oil. Nonetheless it is the steepest price hike in petrol price ever.

As was expected, the hike in prices has seen sharp reactions from the common people and from other political parties. However, the markets have reacted positively to the increase and the rupee is also expected to appreciate. Most analysts are now expecting that this hike will be followed by an increase in the prices of diesel, LPG and kerosene as well.

Justifying the government’s move the Oil Minister, S Jaipal Reddy stated that the depreciation in rupee had necessitated the increase in fuel prices. This was because when the rupee falls by one against the dollar, oil companies suffer losses to the tune of Rs 8,000 crore annually. The rupee has seen a substantial fall in the last fortnight and has touched an all time low of Rs 55 against the dollar. Last year the rupee was around Rs 46 to a dollar. This has translated in to a loss of Rs 72,000 crore, this year for oil company’s just on account of rupee depreciation.

The losses on petrol are over and above Rs 512 crore per day that oil firms lose on selling diesel, domestic LPG and kerosene. Diesel is currently sold at a loss of Rs 15.35 a litre, kerosene at Rs 32.98 per litre loss and oil firms lose Rs 479 on sale of every 14.2-kg domestic LPG cylinder.

The price of petrol has been deregulated but continues to be under government supervision. Even though global prices had shot up, the government had kept the oil companies from raising prices because of political considerations. Since the three oil PSUs were suffering heavy losses they had threatened the government that they would go ahead and increase the prices of petrol if they were not compensated for the loss. As a result the government has announced subsidies to the tune of Rs 38,500 crore for the last fiscal of FY12.

The price is expected to have an inflationary impact on the economy and the Planning Commission is of the view that the impact will be a one time price adjustment and will not have a cascading effect. The retail inflation (CPI) for April was 10.36%, up from 9.38% in February. The inflation based on movement in wholesale prices (WPI) moved up to 7.23% in April from 6.89% in March.

The S&P CNX Nifty touched a high and low 4,931.90 and 4,830.15 respectively.

The top gainers on the Nifty were ONGC up by 6.08%, Bharti Airtel up by 5.32%, Bank of Baroda up by 5.21%, Ranbaxy up by 5.07% and HDFC up by 4.41%.

On the flipside, JP Associates down by 1.08%, Cairn down by 0.95%, Maruti Suzuki down by 0.70%, HUL down by 0.47% and GAIL down by 0.42% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 up by 1.39%, Britain’s FTSE 100 up down by 1.40%, while Germany's DAX up by 0.74%.

Recovering from earlier day’s losses Asian shares ended the day on mixed terrain on Thursday on the back of shrink in factory orders in China and absence of concrete actions by European leaders in EUI summit to tackle the risk of Greece leaving the currency block. Chinese output has fell for the 7th month in a row to 48.7 in May against 49.3 in April, because of which China's Shanghai Composite index fell over half percent, extending declines for a second consecutive session. On Wednesday European Union leaders have been advised by senior officials to get ready with the contingency plans in case Greece quits the single currency area. Meanwhile the euro traded near the weakest level since July 2010. The triggers from Greece and Spain remained crucial as some additional hidden debt was found in Spain’s regions books, which could consider on non-core bonds at the onset of trading.

Indonesia's Jakarta Composite index and Singapore's Straits Times have not seen major changes and Malaysia's KLSE Composite was up 0.55%, but the Taiwan Weighed was down by 0.32%.