Raghuram Rajan’s reform plan entice rally in the markets

Extending last session’s jubilation, Indian equity benchmarks witnessed terrific day of trade with bull taking full control over the session on Thursday. Markets kick started the session with huge gap on the up-side as sentiments remained up-beat after country’s new central bank governor unveiled fresh measures to shore up the rupee and aid overseas inflows. The Reserve Bank of India (RBI) has decided to offer banks a window to swap fresh foreign currency non-resident (banks) dollar funds. These are mobilized for a minimum tenor of three years and at a fixed rate of 3.5 per cent per annum. RBI’s move follows banks’ request to consider a special concessional window to swap FCNR deposits. RBI has also decided to raise the current overseas borrowing limit of the unimpaired tier-I capital. Sentiments also got encouraged with the passage of the Pension Fund Regulatory and Development Authority Bill, 2011 in the Lok Sabha.

Global cues too remained euphoric with the US markets providing the lead to Indian benchmarks in initial trade. Moreover, most of the Asian equity benchmarks shut shop in the green with South Korea’s Kospi Composite surging around a percentage point as Samsung Electronics, which accounts for 18 per cent of the index’s weightage, rose 1.9 per cent on unveiling its smartwatch. Firm opening in European markets too provided strength to domestic bourses with CAC, DAX and FTSE all trading in the positive terrain ahead of the G20 summit in Russia where world leaders are expected to discuss Syria and the global economy.

Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too equally participated in the rally. Both the benchmarks scaled past to the psychological levels of 19,950 (Sensex) and 5,550 (Nifty). Recovery in Indian rupee too supported the sentiments. The partially convertible rupee was trading at 66.15 per dollar at the time of equity market closing against the yesterday’s close of 67.09 on the Interbank Foreign Exchange. Meanwhile, shares of companies that have applied for a banking licence viz. Bajaj Finance, JM Financial, LIC Housing Finance, IFCI, L&T Finance Holdings, Muthoot Finance, India Infoline and IDFC remained on the buyers’ radar after the Reserve Bank of India (RBI) Governor Raghuram Rajan roughly indicated that new bank licenses are likely to be announced around January 2014. Sentiments also remained up-beat after shares of public sector oil marketing companies (OMCs) viz, BPCL, HPCL and IOC edged higher after crude oil fell the most in two weeks on September 4, 2013, as the US considered limiting the scale of military strikes on Syria.

The NSE’s 50-share broadly followed index Nifty surged by over one hundred and forty points to end near its psychological 5,600 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex soared over four hundred and ten points to end above the psychological 18,950 mark.

Broader markets too traded with traction and ended the session with a gain of over one and a half percentage point. The market breadth remained in favour of advances, as there were 1,487 shares on the gaining side against 849 shares on the losing side, while 138 shares remained unchanged.

Finally, the BSE Sensex surged 412.21 points or 2.22 % to settle at 18,979.76, while the CNX Nifty climbed by 144.85 points or 2.66% to end at 5,592.95.

The BSE Sensex touched a high and a low of 19,117.52 and 18,847.02, respectively. The BSE Mid cap index was up by 1.69% and Small cap index was up by 1.52%.

The top gainers on the Sensex were, SBI up 9.74%, ICICI Bank up 9.20%, BHEL up 8.20%, HDFC Bank up 7.53% and Coal India up 7.02%. On the flip side, Sesa Goa down 4.26%, TCS down 3.37%, Infosys down 3.32%, Wipro down 2.74% and GAIL down 1.54% were the top losers on the index. 

On the BSE Sectoral front, Bankex up by 9.30%, Realty up by 5.41%, Consumer Durables up by 4.54%, PSU up by 4.50% and Capital Goods up by 3.48% were the top gainers, while IT down 2.95%, TECk down 2.19% and Health Care down 0.22% were the top losers in the space.

Meanwhile, global rating agency Moody's has said that India's inflation and fiscal metrics remain weaker than its peer countries. Further, the rating agency said that a higher subsidy burden and lower growth will weaken the country's fiscal metrics, however, it added that the country's current reserves can finance the current account and external debt payment needs.

In January, Moody’s had reaffirmed ‘Baa3’ (which is equivalent to BBB minus) sovereign credit rating for India that indicates investment grade but with a stable outlook. The rating agency had already raised concerns over the impact of the subsidy outgo for the Food Security Bill and had said that the bill with an annual $20 billion budget will widen the country’s fiscal deficit. Meanwhile, the government has set the target to contain the country’s fiscal deficit at 4.8 percent of GDP in FY14.

Moody’s had also highlighted inadequate infrastructure a constraint for India's sovereign rating adding that inefficient infrastructure have been impacting India’s growth potential as well as the competitiveness of its export and import-competing sectors, contributing to high current account deficits (CAD). 

The CNX Nifty touched a high and low of 5,625.75 and 5,552.70 respectively. 

The top gainers on the Nifty were Axis Bank up by 15.91%, Kotak Bank up by 9.43%, SBI up 9.36%, ICICI Bank up 8.84% and Bank of Baroda up by 8.72%. On the other hand, Sesa Goa down by 6.77%, TCS down by 3.63%, Infosys down 3.53%, Lupin down 2.63% and HCL Tech was down by 1.96% were the top losers.

The European markets were trading in green, France’s CAC 40 up by 0.35%, Germany’s DAX up by 0.44% and the United Kingdom’s FTSE 100 up by 0.60%.

Most of the Asian markets barring Shanghai Composite and Jakarta Composite concluded Thursday’s trade in green. Hong Kong shares closed at their highest in more than three months while Seoul shares rose to their highest closing level in three months, buoyed by continued foreign capital inflows after bullish global data bolstered investor confidence. Foreign investors were net buyers for a 10th straight session, purchasing 513.3 billion won ($469 million) worth of local shares, the most since February 20. Shanghai shares slipped for the first time in five days as weakness in material counters offset strength for property developers after official media reported that regulators will release new sector refinancing rules in the coming weeks.

The Bank of Japan (BOJ) formally proclaimed that the world’s third-biggest economy is back on a recovery track, a move that could tip the balance in favor of a planned sales tax hike from next spring as Prime Minister Shinzo Abe nears a final decision on the matter. The upgrade in the central bank’s assessment will also likely strengthen speculation that the BOJ will hold off on any additional easing for the time being, at least until the sales tax increase from April. The BOJ’s nine-member policy board decided to stand pat on monetary policy. BOJ voted unanimously to maintain its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 60 trillion yen ($602 billion) to 70 trillion yen. The policy board stated that the country’s economy is recovering moderately and the tone of the language is the strongest since March 2008, when the central bank described the economy as expanding moderately.

Meanwhile, the International Monetary Fund warned the Group of 20 that emerging economies were slowing more than expected and under pressure from US plans to slow its stimulus. The IMF stated that recent indicators pointed to stronger growth in several advanced countries, but key emerging economies have slowed. Since its July report on global developments and risks, the IMF raised concern that growth projections for emerging economies are being revised downward with risks still to the downside.