Local bourses exhibit jubilant trade on reform hopes

Stock markets in India, coming out of their consolidation phase, showcased high degree of buoyancy on Thursday as the benchmark equity indices finished the session on a sanguine note on expectations of ‘second wave of reforms.’ The frontline indices exhibited a strong performance by vehemently garnering about a percentage point with Sensex crossing psychological 19,000 and Nifty ending past 5,750 levels, after momentarily breaching the crucial 5,800 mark, for the first time in almost 15 months ahead of a cabinet meeting in which big ticket economic reforms are expected to be taken up.

The key gauges rallied on hopes that the cabinet may approve bills that would raise the cap on foreign direct investment in insurance firms and open the pension sector to foreign investors. The Cabinet will also consider the Forward Contract Regulation Act (Amendment) Bill to empower commodity markets regulator FMC with greater financial autonomy. It will also take up the Companies Bill to bring all sectors under the Companies Act, amendment to the Competition Act and a proposal for operationalizing the Infrastructure Development Fund (IDF). Furthermore, a proposal to set up a National Investment Board (NIB), to be headed by Prime Minister Manmohan Singh, for according fast-track clearances to infrastructure projects will also be taken up at the meeting.

Appreciation in Indian rupee too boosted the sentiments. Indian rupee remained below 52 against the US dollar, strengthening by 30 paise to 51.85 against the US dollar, which indicates that the foreign institutional investors continued buying into Indian equities. But, the same remained dampener for the IT stocks as appreciation in rupee will impact software companies’ profit margins. Stocks of Infosys, TCS, Mphasis, Tech Mahindra and Oracle Financial Services tumbled during the trade. Despite this, the bourses continued its jubilant run till the end supported by better than expected service sector activity in India, which expanded at the fastest pace in seven months in September, driven by firm demand and ‘resilience’ of the sector. According to the seasonally adjusted HSBC Business Activity Index, the service sector activity soared to 55.00 in September, as against 54.3 in the previous month.

Cues from the global front too remained supportive as European counters advanced in early deals on Thursday, ahead of interest rate decisions from the Bank of England and the European Central Bank, and before key bond auctions in Spain. While, Asian markets snapped the session mostly in the green as investors cheered upbeat US economic data, but nagging concerns over Europe kept advances in check.

Back home, some strength also came in after shares of companies engaged in insurance business such as Aditya Birla Nuvo, Max India, Reliance Capital and Bajaj Finserv edged higher on optimism for government action. The sentiments also got some support after telecom stocks like Idea Cellular, Bharti Airtel and Reliance Communication edged higher after the Empowered Group of Ministers (EGoM) ratified department of telecommunications (DoT) decision on 100% foreign companies’ eligibility, now they can bid on their own without a partner.

The NSE’s 50-share broadly followed index Nifty, rose by over fifty points to settle comfortably over the psychological 5,750 support level moreover, Bombay Stock Exchange’s Sensitive Index -Sensex- up by about two hundred points to finish comfortably above the psychological 19,000 mark. The broader markets too traded with strong traction through the session and ended with a gain of about half a percent.

The markets rose on overall volumes of over Rs 1.39 lakh crore, which remained on the higher side as compared to that on Wednesday. Moreover, the market breadth remained in favor of advances as there were 1,705 shares on the gaining side against 1,245 shares on the losing side while 121 shares remain unchanged.

The BSE Sensex surged 188.46 points or 1.00% to settle at 19058.15, while the S&P CNX Nifty soared by 56.35 points or 0.98% to close at 5,787.60. The BSE Sensex touched a high and a low of 19107.04 and 18939.75 respectively. The BSE Mid cap index was up by 0.41% and Small cap index gained 0.35%. 

BHEL up by 6.57%, ICICI Bank up by 2.93%, Dr Reddys Lab up by 2.16%, SBI up by 2.15% and Maruti Suzuki up by 1.97% were top gainers on the Sensex, while Cipla down 3.86%, M&M down 1.24%, Bajaj Auto down 1.05%, Hero MotoCorp down 1.02% and Coal India down 0.92% were top losers on the index.

The major gainers on the BSE sectoral space were, Realty up 4.94%, Consumer Durables (CD) up 2.44%, Bankex up 1.92%, Capital Goods (CG) up 1.89% and Power up 1.57%, while Health Care (HC) down 0.92, IT down 0.28% and Auto down 0.08% were top losers on the BSE sectoral space.  

Meanwhile, service sector activity in India expanded at the fastest pace in seven months in September, driven by firm demand and ‘resilience’ of the sector. The service sector, which makes up nearly 60 percent of India's economic output, extended its growth momentum for the eleven consecutive month.  According to the seasonally adjusted HSBC Business Activity Index, the service sector activity soared to 55.00 in September, as against 54.3 in the previous month. A figure above 50 signals increase in production while, a number below 50 indicates contraction. Furthermore, production in the manufacturing sector expanded solidly, with growth accelerating from August.

New orders at private sector companies in India expanded at a sharp rate, the fastest in seven months.  Additionally, job creation was recorded in the Indian private sector during September, marking a seven-month sequence of expanding workforces. Furthermore, services and manufacturing firms both signaled increasing payroll numbers, with the rate of growth faster at manufacturers. However, with services companies reporting a depletion of backlogs but manufacturers signaling a solid accumulation, the volume of outstanding business in the Indian private sector increased only slightly. Basically, persistent power cuts continued to affect backlogs of work in the manufacturing sector.

Extending the current inflationary period to 40 months, the composite data posted a further increase in output cost, but the rate of increase of service providers was at a slower pace than manufacturers. Meanwhile, even input cost inflation persisted in the Indian private sector in August. Manufacturers registered the fastest increase in input prices since June, and linked persistent inflation to rising raw material and diesel prices.

However, the HSBC PMI survey further underscored inflation pressures to have firmed again on the back of rising costs. Thus, with inflation risks still lingering, the world’s most aggressive central bank RBI has little room to manoeuvre, although further progress on fiscal consolidation and structural reforms may eventually pave the way for some easing.  Additionally, although services companies remained optimistic regarding the short-term business outlook, the degree of positive sentiment in September was at a six-month low.

The government recently has taken a number of reform initiatives such as opening the multi-brand retail and aviation sectors to FDI, hiking diesel prices and capping the number of subsidized LPG cylinders. In another round of big-ticket reforms, the Union Cabinet is likely to approve the proposal for raising the FDI cap in the insurance sector to 49 percent and opening up the pension sector to foreign investment.

The S&P CNX Nifty touched a high and low of 5,807.25 and 5,751.35 respectively.

The top gainers on the Nifty were BHEL up by 7.16%, DLF up by 6.03%, JP Associates up by 3.71%, BPCL up by 3.45% and ICICI Bank up by 3.11%. On the flip side, Cipla down by 4.47%, Lupin down 3.20%, Ranbaxy down 1.20%, Hero MotoCorp down 1.17% and M&M down 1.14% were top losers.

The European markets were trading mixed, France's CAC 40 up by 0.18%, Germany's DAX up by 0.12% and United Kingdom’s FTSE 100 up by 0.23%.

Asian shares ended mostly higher after a choppy session on Thursday, on positive reports that U.S. service companies grew last month at the fastest pace in six months. Investors remained cautious about slow global growth ahead of European Central Bank policy meeting. Japanese export shares soared on the back of possibility of a healing economy in the U.S., which is a key market for Japanese goods including high-end vehicles.

Chinese markets are closed this week for public holidays.