QE3, diesel price hike fortifies benchmarks; Nifty conquers 5,550 level

Indian equity markets gave a big thumbs-up to the government’s first major action to reduce fiscal deficit by raising diesel price and limiting the number of subsidised cooking gas cylinders per household to six per year. Moreover, announcement of economic stimulus by the Federal Reserve too boosted the sentiments. The frontline indices rallied for eighth consecutive session conquering their crucial 18,450 (Sensex) and 5,550 (Nifty) bastions, up by almost 2.5 percent each to their highest close since July 2011. Sentiments got filliped after the government raised diesel prices by Rs 5 per litre (excluding VAT). Diesel will now cost approximately Rs 47/litre in Delhi. The price revision comes after more than a year. Market-men even went ahead to overlook the higher August month’s WPI data. India’s main inflation gauge shockingly rose at 7.55% for the month of August, as compared to 6.87% (Provisional) for the previous month and 9.78% during the corresponding month of the previous year. The index for primary articles group, which has a weightage of 20.12% in overall WPI and includes food, non-food and minerals groups rose 0.3% to 219.5 from 218.8 for the previous month.

Nevertheless, sentiments remained extremely bullish as investors piled up hefty positions not only in heavyweight stocks but largely across the board amid hopes that the Reserve Bank of India may ease its monetary policy stance in the coming policy review meet on Sept 17. The frontline indices capitalized on the momentum and remained in euphoric mood for whole trading session without any interruption and even sailed beyond various crucial levels as government’s decision to hike diesel prices raised hopes that reforms might be coming back on track. Some amount of strength also came in from aviation sector as stocks of Jet Airways India, Spicejet and Kingfisher Airlines surged on hopes that the government will finally allow foreign direct investment in the sector at the Cabinet Committee on Economic Affairs (CCEA) meet later today.

Global cues too remained jubilant as European counters rallied in the early trade on Fed’s new stimulus. Fed said it would buy $40 billion of mortgage-backed securities a month until the US economy improves. Fed’s decision would lead to a rise in liquidity in the global economy, giving a push to riskier assets like equities and commodities. While, all the Asian counters ended the session in the positive terrain on last trading day of the week. Overnight, US markets surged nearing to their highest finish since late 2007.

Back home, the rate sensitive like realty and banking space too aided the sentiments on hopes that a hike in diesel prices will provide room for Reserve Bank of India to ease monetary policy to give thrust on growth. Stocks related to retail and cable TV services provider also rallied quite smartly on hopes of green signal for hike in FDI cap. Meanwhile, the rupee rose to its strongest level in two-and-a-half months. The partially convertible rupee rose as high as 54.64 earlier in the session, its strongest since July 4. It had closed at 55.43/44 on Thursday.

The NSE’s 50-share broadly followed index Nifty, rose by over one hundred forty points to end comfortably over the psychological 5,550 support level, while Bombay Stock Exchange’s Sensitive Index - Sensex zoomed by over four hundred and forty points to finish above the psychological 18,450 mark. However, the broader markets underperformed frontline indices but, ended the session in the green with a gain of over half a percent.

The markets rose on overall volumes of over Rs 2.20 lakh crore, which remained on the higher side as compared to that on Thursday. Moreover, the market breadth remained in favor of advances as there were 1,503 shares on the gaining side against 1,422 shares on the losing side while 133 shares remain unchanged.

The BSE Sensex rallied 443.11 points or 2.46% to settle at 18,464.27, while the S&P CNX Nifty climbed by 142.30 points or 2.62% to close at 5,577.65.

The BSE Sensex touched a high and a low of 18,498.54 and 18,284.75 respectively. However, the BSE Mid cap index was up by 0.88% and Small cap index up by 0.45%.

Jindal Steel up by 8.83%, Hindalco up by 8.00%, SBI up by 5.52%, RIL up by 5.35% and ICICI Bank up by 4.97% were top gainers on the Sensex, while NTPC down 1.61%, Dr Reddys Lab down 1.59%, ITC down 0.59%, ONGC down 0.37% and TCS down 0.24% were top losers on the index.

The major gainers on the BSE sectoral space were, Realty up 4.878%, Metal up 4.25%, Bankex up 4.15%, Capital Goods (CG) up 3.48% and Auto up 2.89%, while Health Care (HC) down 1.24% and FMCG down 0.49% were top losers on the BSE sectoral space.  

Meanwhile, supporting government’s inevitable move of raising the fuel prices amid hefty fiscal deficit, Prime Minister's Economic Advisory Council Chairman (PMEAC) C Rangarajan has pointed out that hike in diesel price will compel the Reserve Bank to ease monetary policy to give thrust on growth, as inflation is likely to go up at least 0.4 percent in the near future.

The government has raised the diesel prices by about Rs 5 a liter and also limited the number of subsidized cooking gas cylinder to six per household a year. This move will garner an additional Rs 20,300 crore to the oil companies, who had claimed a loss of over Rs 560 crore per day on the sale of regulated diesel and cooking fuels.

CRISIL Chief Economist D K Joshi also supported government’s move, pointing out that the decision was highly necessary to reduce the financial burden of the nation, though will ignite inflation, there will be good impact on the economy of the country. Department of Economic Affairs Secretary (DEA) Arvind Mayaram and Yes Bank’s Chief Economist Shubhada Rao also echoed similar views.

The S&P CNX Nifty touched a high and low of 5,586.65 and 5,526.95 respectively.

The top gainers on the Nifty were Jindal Steel up by 7.79%, Hindalco up by 7.44%, DLF up by 7.43%, JP Associates up by 6.72% and Axis Bank up by 6.49%. On the flip side, Ranbaxy down by 2.07%, NTPC down 1.87%, Dr Reddy down 1.83%, Power Grid down 1.36% and BPCL down by 1.33% were top losers.

The European markets were trading in green, France's CAC 40 up by 2.07%, Germany's DAX up by 1.49% and United Kingdom’s FTSE 100 up by 1.58%.

Asian stock markets went home with huge gains on Friday on the back of much awaited launch of third quantitative easing by the Federal Reserve yesterday with keeping the funds rate at 0.0%-0.25% at least till mid-2015. Kospi Composite hits a five month high in the session, while Hong Kong's Hang Seng Index ended firm after touching highest level since early May. Japan's Nikkei closed strong, gaining a foothold above 9,000 on bold plans for stimulus from the US Federal Reserve.