Indian benchmarks convalesce by over 2% on reforms push

21 Sep 2012 Evaluate

Indian frontline equity indices staged a smart bounce back on Friday, a session after being pulverized by around a percent, as the government notified FDI in retail, aviation, broadcasting and power exchanges. Nifty ended near its high of July 8, 2011, which was little below the 5,700 mark-a level which acted nothing short of strong resistance. Similarly, Sensex, too puffing over 2 percent gains ended above the 18,750 psychological level, scaling new highs for 2012. Sentiments got fillip after Samajwadi Party leader Mulayam Singh Yadav said his party will continue to extend external support to the UPA government. Yadav’s support comes at a crucial time as the ruling coalition has been reduced to a minority after the Trinamool Congress quit to protest against hike in fuel prices and the decision to allow foreign investment in the retail sector.

Sentiments remained extremely bullish throughout the session, as investors piled up hefty positions not only in heavyweight stocks but largely across the board on reports indicating that the Centre could announce further reform-centric measures in the near term to counter the lingering impression of policy paralysis. Meanwhile, retail and aviation stocks picked up momentum after the government braved intense political opposition to notify rules for allowing foreign retailers such as Walmart and Carrefour to set up stores in India on Thursday. Stocks like Pantaloon Retail, Shoppers Stop, Kingfisher, Jet Airways and Spicejet all edged higher in the trade.

The sentiments also got boost after government approved the operational features of the Rajiv Gandhi Equity Savings Scheme, allowing an income-tax waiver of 50% on new equity investments of up to Rs 50,000 by retail investors who have annual income of less than Rs 10 lakh. The government also slashed the withholding tax on overseas borrowing by local companies to 5% from 20% at present. The reduction in tax will encourage Indian companies to raise funds from the overseas markets. The withholding tax liability on Indian companies was also reduced to 5%. It will apply to funds borrowed between July 2012 and June 2015.

Global cues too remained jubilant as most of the Asian stock markets rallied, as Japan’s Central Bank became the latest to announce a round of asset buying following in the footsteps of Europe and the US. European counters traded with traction in the early deals, supported by speculation that Spain could soon request a bailout and optimism that central bank action will revive growth.

Back home, some amount of strength came in from metal space as stocks like, Sesa Goa, Sterlite Industries, Tata Steel, Hindalco, NMDC and SAIL edged higher after copper prices rebounded back to 4.5-month highs on September 21, 2012. Moreover, the sentiments were also aided by power generation and distribution shares, which gained on reports that the cabinet may meet next week to take more reform steps such as improving the finances of power utilities.

The NSE’s 50-share broadly followed index Nifty, rose by about one hundred forty points to end near the psychological 5,700 support level, while Bombay Stock Exchange’s Sensitive Index - Sensex zoomed by over four hundred points to finish above the psychological 18,750 mark. Moreover, the broader markets too traded jubilantly through the session and snapped the trade with a gain of over one and half a percent.

The markets rose on overall volumes of over Rs 2.65 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 1,792 shares on the gaining side against 1,087 shares on the losing side while 117 shares remain unchanged.

The BSE Sensex rallied 403.58 points or 2.20% to settle at 18,752.83, while the S&P CNX Nifty jumped by 136.90 points or 2.46% to close at 5,691.15.

The BSE Sensex touched a high and a low of 18,866.87 and 18,411.20 respectively. However, the BSE Mid cap index was up by 1.61% and Small cap index up by 1.46%.

BHEL up by 7.12%, Jindal Steel up by 6.41%, Sterlite Industries up by 5.20%, SBI up by 4.30% and ICICI Bank up by 4.19% were top gainers on the Sensex, while Dr Reddys Lab down 1.38%, TCS down 1.38%, Infosys down 0.80% and Sun Pharma down 0.10% were top losers on the index.

The major gainers on the BSE sectoral space were, Power up 4.35%, Capital Goods (CG) up 4.12%, Metal up 4.06%, Bankex up 4.05% and PSU up 2.74%, while IT down 0.68% and TECk down 0.04% were only losers on the BSE sectoral space.

Meanwhile, braving the intense political opposition and a nationwide bandh called by the opposition parties and some of its allies, the government showed its hard stand and notified the decisions taken last Friday, related to FDI in retail and aviation sectors and permitting greater foreign investment in some sections of the broadcasting sector. These notifications have given effect to the decisions taken by the Cabinet, putting an end to speculation about a possible roll back of its decisions.

Earlier, the government amid widespread protests from within and outside decided to allow 51 per cent foreign direct investment (FDI) in multi-brand retail, 100 per cent FDI in single-brand retail and 49 per cent FDI each in the civil aviation and power sectors.

After the most contentious 51% FDI in multi-brand retailing getting notification, multinational retailers such as Walmart and Carrefour can invest up to 51 per cent to open stores in 10 states and UTs which, till date, have agreed to implement the decision, as the decision comes with an enabling clause asserting that State governments/Union Territories would be free to take their own decisions in regard to implementation of the policy and is subject to the concerned State government’s approval. The policy further prohibits retail trading through e-commerce by companies with FDI engaged in multibrand retailing.

The governments’ decision has evoked angry reactions from some of its outside supporters and an ally, Trinamool Congressm, which is going to quit the UPA government. Now Prime Minister Manmohan Singh is expected to explain the nation about the reasons behind the step and the benefits it would entail, he may cite the difficult times facing the economy and may put government's stand that the step was aimed at pushing economic growth and generating employment.

The S&P CNX Nifty touched a high and low of 5,720.00 and 5,575.45 respectively.

The top gainers on the Nifty were Reliance Infra up by 9.86%, Axis Bank up by 7.72%, SAIL up by 7.62%, BHEL up by 7.47% and Jindal Steel up by 7.34%. On the flip side, TCS down by 1.15%, Dr Reddy down 0.96%, Infosys down 0.85% and Cipla down by 0.11% were top losers.

The European markets were trading mixed, France's CAC 40 up by 0.05%, Germany's DAX up by 0.25% and United Kingdom’s FTSE 100 down by 0.13%.

Snapping earlier day’s losses Asian stock markets rebounded and went home with green mark on Friday, tracking technology and oil companies’ gains and overshadowed worries about the uncertain global economy. The technology sector got a boost from the strong orders for Apple's iPhone 5, which went on sale in Asia. Japan's Nikkei ended up on Friday, reversing previous day’s sharp drop as investors relieved from steadiness in U.S. stocks, shrugging off fears over soft manufacturing data from China, Europe and the United States. Hong Kong shares closed in green, boosted by commodities-related sectors, as investors risk appetite increased after oil prices steadied at the end of a volatile week, while Malaysia's KLSE Composite index slipped 0.1%.

Asian Indices	Last Trade	Change in Points	Change in %
Shanghai Composite	2,026.69	1.85	0.09
Hang Seng	20,734.94	144.02	0.70
Jakarta Composite	4,244.62	27.10	0.64
KLSE Composite	1,623.70	-1.89	-0.12
Nikkei 225	9,110.00	23.02	0.25
Straits Times	3,078.23	15.62	0.51
KOSPI Composite	2,002.37	12.04	0.60
Taiwan Weighted	7,754.59	27.04	0.35

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Indian benchmarks convalesce by over 2% on reforms push

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