Sensex rises 498 points as recovery signs spread

Sensex rises 498 points as recovery signs spread
The Financial Express, August 14, 2009, Page 1

fe Bureaus, Mumbai

The stock market saw a widespread rally on Thursday on strong domestic and global cues. Buoyed by the surprise 7.8% rise in June factory output and the new direct tax code’s promise of an end to STT and a 5% cut in corporate tax, the market went on a steady climb, with 79.28% stocks advancing and leaving no losers on the Sensex.

Backing the rally were a statement from the Fed that the US economy is showing signs of improvement and news from the Eurozone that Germany and France have come out of the worst recession in Europe since 1945.

Foreign institutional investors pumped in a net Rs 630.94 crore into the market, taking their total investment this month to Rs 7,068.61 crore. Data released by RBI revealed that foreign investment in the April-June quarter surged five-fold to $15 billion, from $3 billion in the previous quarter, in what is seen as a vote of confidence in India’s economic recovery.

As the equity market rose, the rupee strengthened by 26 paise to 48.10/11, from its overnight close of 48.36/37.

The 30-share Sensex of the Bombay Stock Exchange (BSE) posted a solid gain of 498.33 points, or 3.32%, and closed the day at 15,518.49 points. The broader 50-share Nifty of the National Stock Exchange (NSE) surged higher by 147.50 points, or 3.31%, to close five points above the 4,600-mark.

Key Asian equity indices, too, advanced, with Hang Seng gaining 2.08%, Straits Times 1.67% and Taiwan Weighted 1.97%. But the Indian equity market remained the top gainer in the Asia-Pacific region on Thursday.

Global rating agency Standard & Poor’s raised India’s economic growth forecast by 30 basis points to 6.3% for the current fiscal, following the government’s stimulus measures and an improvement in global markets.

The flood of positive news prompted investors to square-off their short position in the derivative markets. According to market experts, institutional investors had sold heavily in the futures market last week, expecting a sharp correction on reports of a weak monsoon in India.

“The immediate trigger for the current rally is US federal Reserves statement that the US economy is improving and its decision to keep interest rate unchanged,” said Vipul Dalal, country head–broking, Elara Capital.

On the domestic side, IIP figures released on Wednesday has given a strong signal that the worst is behind us and India is on the path to a speedy recovery from the current crisis, he added.

In a note issued to its clients, Morgan Stanley said it expects further recovery in industrial output. “In fact, the IIP growth in June 2009 is highest since February 2008. While we expect sustained recovery in IIP growth, the monthly growth numbers do tend to be volatile at times and there could be some retracement in IP growth over the next 1-2 months,” it said.

Despite these positives, market is a little concerned about the monsoon deficit and the spread of swine flu in India. On a cautious note, Dalal said, “Going forward, the market needs to assess the impact of the shortage in rainfall. Moreover, if the spread of swine flu is not contained, it may start impacting commercial activities.”