Sensex zooms to 19-month high, breaches the 19000-mark

Stocks of the bluest of the blue chips surged on Thursday on resurgence of reform hopes and restoration of faith on India’s growth story by international rating agency Moody’s and investment banker Goldman Sachs

The benchmark the Bombay Stock Exchange (BSE) 30-share sensitive index (Sensex) shot up by 328.83 points or 1.75 per cent to close at 19170.91, a 19-month high. A broader National Stock Exchanges (NSE) 50-share Nifty closed at 5825, a rise of 97.55 points or 1.70 per cent.

A belief that reforms such as foreign funds’ entry into the multi-brand retail segment would pass through by a vote in Parliament gives hopes to investors that key reforms would be implemented by the government at the earliest.

While Moody’s kept the country’s rating outlook at stable, another global investment banker Goldman Sachs, on Thursday, upgraded Indian equities to “overweight” from “market-weight”.

Going forward, the investment banker believes that both recovery in growth and moderation in inflation would be possible, and cited as reasons for its upgradation.

It has also predicted a target of 6600 level for the Nifty by December 2013.

“Indian markets have recovered because of better risk-taking environment,” said Jignesh Shah, Executive Director, Sarasin-Alpen (India) Private Limited. Besides the declining risk aversion, “the factors which have contributed to the market movement in the last couple of weeks, have been easy global liquidity and better possibility of rate cuts in India in the near-term. Simultaneously, rupee has strengthened,” he added.

“Nifty closed at an all new high as expected as it has crossed the resistance of 5770. The main driver of the market was heavily short which led to stunning rally,” said Kishor P. Ostwal, CMD, CNI Research Ltd.

The moot question is whether this rally is sustainable? There are enough challenges in the near-term which include fiscal cliff in the U.S., debt problems in the eurozone and slowdown in India. Accordingly, said Mr. Shah, “We have ‘neutral’ stance on equity in India.” Further, the market is awaiting the September-quarter gross domestic product data due on Friday.

Inflation problem

In India, part of inflation problem is going to continue as it’s more structural in nature, and it is also because of infrastructure bottlenecks and supply constraints because of that. But, as mentioned by the Reserve Bank of India (RBI) in the last monetary policy review, inflation should start coming off in the first quarter of calendar year 2013.

“That should give some flexibility to the regulator to reduce the key policy rates and also comfort to the corporate world, in terms of lower borrowing cost,” Mr. Shah added. With enhanced integration of Indian markets to the global markets since 1992, global markets have been significant influencer to the Indian markets, in the near-term. However, over the longer term, Indian markets have been growing based on its fundamentals which are very strong.

Said Mr. Shah “Longer term growth story is positive.”

Rupee shoots up

PTI reports:

Tracking a steep rise in domestic stocks, the rupee on Thursday sharply appreciated by 61 paise, its biggest gain in two months, to end at 54.84 helped by capital inflows worth nearly $300 million and sustained dollar sales by exporters.

Weak dollar overseas and rising hopes of government being able to push through reforms helped rupee rise, said dealers.