Euphoric stock markets on Tuesday surged 1.71 per cent to a record high while the rupee hit a 16-month peak on Tuesday, as a big win for the Bharatiya Janata Party (BJP) in the state elections, especially Uttar Pradesh, was seen as bolstering Prime Minister Narendra Modi’s economic reform agenda. The National Stock Exchange Nifty Index settled higher by 152.45 points, or 1.71 per cent, at a life-time high of 9,087, surpassing its previous record of 8,996.25 on March 3, 2015.
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The benchmark Sensex of the BSE vaulted by 496.40 points, or 1.71 per cent, at 29,442.63 — a level last seen on March 5, 2015. At one point, the 30-share blue-chip index rallied 615.70 points to hit a high of 29,561.93. The 50-share NSE Nifty pierced through the 9,100-mark to hit 9,122.75, an all-time intra-day high.
The rupee also surged to a 16-month high of 65.81/82, a huge gain of 78 paise, amid dollar sales and poor demand for the US currency. The rupee is now the third best performing currency in Asia since the start of this year. While the rupee has had a strengthening bias over the past month, the surge on Tuesday was driven by the outcome of state elections announced over the weekend.
Investors ignored a spike in February WPI inflation to 6.55 per cent and pumped in more money on hopes that the assembly poll win will make the government push through bold reforms. On the other hand, a strong set of industrial output numbers for January, with IIP expanding 2.7 per cent year-on-year, further boosted the sentiment.
The gains in the stock markets and currency were supported by strong inflows from foreign portfolio investors even as domestic institutional investors turned net sellers. According to the provisional data with BSE, FPIs pumped in Rs 4,087 crore in the equities market on Tuesday while the DIIs sold Rs 1,519 crore.
The rally was led by ICICI Bank which surged 5.99 per cent, Hindustan Unilever (4.54 per cent), L&T (4.40 per cent), HDFC (3.69 per cent), Asian Paints (3.51 per cent), Maruti Suzuki (3.02 per cent) and Adani Ports (2.92 per cent).
“The victory of BJP in the assembly elections increases the control of BJP in these states. The assembly election outcome also indicates that PM Modi still remains the popular leader in the country despite decisions like demonetisation. This clearly means that BJP remains a favourite to win the general elections in 2019. This gives BJP another 7 years to continue its pro-growth policies. This will be positive for the country as it gives assurance of bringing more reforms and stability in the country. We believe that indian equities are set to see higher inflows in the equities,” said Vaibhav Agrawal, head of research, Angel Broking.
According to Jayant Manglik, president, retail distribution, Religare Securities, the jubilation was mainly in reaction to the BJP’s historic win in state elections especially in UP, which will further strengthen the government’s reform agenda. “Also, the IIP data came at 2.7 per cent for the month of January which added to the positivity.
Karthikraj Lakshmanan, senior fund manager, BNP Paribas Mutual Fund, said: “The market started the day with a gap up opening, triggered by the strong performance of the BJP in the recently held five state elections. Both the Sensex and the Nifty traded above the psychologically important levels of 29000 and 9000, respectively to finally close the day with gains of over 1.5 per cent.”
However, analysts are keeping their fingers crossed on the continuity of the rally in the coming days. The important event to watch out for will be the US Federal Reserve meeting decision on rates. “While markets are expecting a rate hike this meeting, what will be of more interest is the commentary. If it is hawkish, it may have an impact on fund flows to emerging markets. India may be relatively less impacted because of the continuing domestic flows,” Shah said.
“Markets will now be eyeing the US Fed stance on key rates. Majority feels that they will go ahead with the rate hike but there’s no clear signal on the quantum of the hike,” Manglik said. “Continued stability in the country’s political scenario is always welcomed by the investors,” said Gaurav Dua, Head of Research, Sharekhan.