Stocks rally on upward pricing of natural gas and global cues

Stock indices surged on Friday by more than 2 per cent following global cues and upward pricing of natural gas by the government from April 1, 2014. The rally in equities was also accelerated by a stronger rupee, which settled back above the 60-mark against the dollar.

The Bombay Stock Exchange (BSE) 30-share sensitive index, Sensex, zoomed 519.86 points or 2.75 per cent to 19395.81. The rally was led by metal stocks which gained 4.70 per cent followed by power 4.15 per cent, capital goods 4.03 per cent, PSUs 3.52 per cent, oil and gas 3.37 per cent, banks 3.18 per cent, automobile 3.11 per cent and realty 3.04 per cent. All sectoral indices ended in the positive territory.

Among the broad-based indices, BSE 100 surged by 2.52 per cent, BSE 200 by 2.51 per cent and BSE 500 by 2.45 per cent.

The BSE mid-cap and small-cap stocks too gained by 2.26 per cent and 1.37 per cent, respectively.

On the National Stock Exchange (NSE), a broader 50-share Nifty closed at 5842.20 with a gain of 159.85 points or 2.81 per cent.

“The markets opened with a positive note tracking global cues. The declining Current Account Deficit (CAD) and the government approval of C. Rangarajan Committee report on gas price hike also helped the heavy weight stocks such as , Reliance Industries and ONGC to outperform, which helped the Nifty to breach the 5800 level,” said Alex Mathews, Head Research, Geojit BNP Paribas Financial Services Ltd.

“There were short positions which were rolled over from June to July also got triggered today [Friday], especially Nifty futures, which saw heavy short covering above 5800,” Mr. Mathews added. Other than oil and oil exploration stocks, Mr. Mathews said that “tea stocks jumped on tea price hike and the fertiliser stocks rose after the government’s proposal to increase the subsidy.”

The European markets were seen paring their profits despite strong Japanese industrial production data. The U.S. index futures were trading higher.

Rupee gains 80 paise

The rupee gained in the foreign exchange market on Friday following government’s move to raise gas prices for the first time in three years, boosting sentiment.

The rupee closed higher as it regained 1.4 per cent at 59.38/39 a dollar compared with its previous close of 60.18/19 on Thursday. It rose to an intra-day high of 59.20.

Further reforms that are in the pipeline include a review of FDI (foreign direct investment) limits across sectors, with a possible increase in the limits on telecom, and possibly, defence sectors. Legislative reforms such as the land acquisition bill may be taken up during the monsoon session of Parliament.

“While none of these reforms will lead to a quick turnaround in the economy and external risks remain, the government is moving in the right direction,” said Sonal Varma Economist, Nomura Financial Advisory and Securities (India) Private Ltd.

Gas and power price hikes will increase the cost for consumers , while easing the burden for producers and encouraging increased supply (positive for investment), a rebalancing that is long overdue in India. “As we had anticipated, the weak currency is acting as a blessing in disguise, as it will prevent the government from engaging in pre-election populism and encourage it to continue with supply-side reforms,” said Mr. Varma.

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