A host of positive factors such as sustained gains in the rupee and easing tensions over Syria kept the stock markets upbeat for the fourth session today with the benchmark BSE Sensex zooming 727 points,the most in more than four years.
Apart from the rupee’s gains,investors were buoyed by trade data that showed exports on the uptick for the second straight month in August,a revival in car sales last month and a cut in the floor price for auctioning telecom spectrum.
The 30-share Sensex resumed on a strong note as Asian stocks rose,triggered by a rally on Wall Street yesterday. The index breached the 20,000 mark for the first time since July 25,before settling at 19,997.10,higher by 727.04 points or 3.77 per cent.
It was the biggest gain in absolute terms since the Sensex surged 2,110.79 points,or 17.34 per cent,on May 18,2009,when the UPA government came to power.
The NSE Nifty index jumped 216.35 points,or 3.81 per cent,to 5,896.75,after touching 5,904.85. MCX-SX’s SX40 index ended at 11,849.66,up 458.1 points or 4.02 per cent.
The rupee continued its upward journey for the fourth consecutive day and traded at a two-week high of 64.25 against the dollar in afternoon deals,up 99 paise.
The threat of immediate US-led military action against Syria appeared uncertain,with Washington saying it will consider Russia’s call for Syria to turn over its chemical weapons to international control.
“Markets up-move continued today due to favourable trade data,” said Rakesh Tarway,AVP of research at Motilal Oswal Securities Ltd. “Moreover,indications of reduced tension in Syria also helped the markets today.”
FII buying was also driven after the RBI allowed non-residents to buy shares of Indian entities listed on stock exchanges under the FDI scheme,subject to certain conditions.
Among the sectoral indices,auto stocks were the winners. Domestic passenger car sales increased 15.37 per cent to 1,33,486 units in August,snapping a nine-month streak of declines.
Foreign institutional investors bought a net Rs 2,563.60 crore of shares today and Rs 800.71 crore of shares on Friday,as per provisional data from the stock exchanges.
Asian stocks closed higher as data from China continued to point to a recovery in the world’s second-largest economy amid signs that Syrian tensions are easing. Indices in China,Hong Kong,South Korea,Singapore,Japan and Taiwan rose.
European stocks advanced to a three-week high as data showed Chinese industrial production and retail sales rose in August,adding to signs the global economy is rebounding. Key indices in France,Germany and UK rose.
The US markets ended higher yesterday,helped partly by hopes the threat of US military intervention in West Asia could be abating.
In the local market,27 Sensex scrips ended higher,led by Tata Motors (9.88 pc),Bharti Airtel (8.15 pc),Hero MotoCorp (7.22 pc),Larsen (7.11 pc) and Sesa Goa (6.3 pc).
Among the sectoral indices,S&P BSE-Auto rose by 5.98 pc followed by S&P BSE-Capital Goods 5.5 pc,S&P BSE-FMCG 5.3 pc,S&P BSE-Consumer Durables 4.8 pc and S&P BSE-Power 3.04 pc.
The market breadth remained positive as 1,502 stocks ended higher while 829 finished lower and 143 ruled steady.
Indian rupee,shares rally as trade deficit narrows
(Reuters) – Investors tentatively bet the worst may be over for the Indian rupee on Tuesday as the currency rallied to a two-week high and shares surged on the back of improving global market sentiment,while data showed the country’s trade deficit narrowed sharply.
Surging exports led the trade deficit in August to narrow to a five-month low of $10.9 billion,providing a rare bright spot after a tough few months for Asia’s third-largest economy,which saw the rupee tumble to a record low of 68.85 on Aug. 28.
Although the deficit was wider than expectations – some traders had forecast the gap would be even lower than $10 billion – it nonetheless provided a dose of optimism for an economy growing at a decade-low pace and bodes well for a reduction in the country’s record high current account deficit.
Shares jumped nearly 4 percent to mark their biggest single-day gain since May 2009,while bonds rallied as well,reflecting how sentiment has swung in less than a week.
Still,investors say the recent gains will need to be sustained by government measures to continue curbing non-essential imports. Expectations are also growing for a hike in subsidised diesel prices that would ease concerns about the government’s finances.
“Led by exporter-selling and resumption of portfolio flows,we expect the rupee to recover and test the 63 level soon. However,any sharp recovery beyond 63 may not happen as adverse external factors still continue to haunt the currency,” said Param Sarma,chief executive at NSP Forex.
The rupee rose as much as 2.1 percent on the day – its fourth consecutive daily gain of more than 1 percent. It was trading at 64.27 to the dollar at 1000 GMT versus its Friday close of 65.24/25. Indian markets were closed on Monday.
Improving global investor sentiment also helped the rupee on Tuesday.
Russia’s proposal to work with Damascus to put Syria’s chemical weapons under international control was seen potentially averting planned U.S. military strikes,while China posted better-than-expected industrial output and retail sales data.
Benchmark Brent oil prices fell,extending Monday’s slide,a big factor for India since crude oil is its biggest import.
Bond yields fell sharply,tracking the drop in crude oil prices. The 10-year bond yield was down 12 basis points (bps) at 8.51 percent.
The rally was sparked after former International Monetary Fund Chief Economist Raghuram Rajan took the helm of the central bank last Wednesday and quickly unveiled a spate of measures to support the currency and open up markets.
Hopes that Rajan will unveil more market-friendly measures were boosted further after the Reserve Bank of India late on Friday made it easier for it for non-residents to buy shares of listed companies.
Just a week ago,the rupee had lost more than 20 percent Of its value so far for the year. It is still down over 14 percent.
A Reuters poll last week showed that strategists expected the currency to bottom out to around 66 to the dollar in one month,though it was not expected to regain much ground in the coming year.
The switch in sentiment is also being reflected by flows into shares,with foreign institutional investors (FIIs) buying nearly 20 billion rupees ($306.26 million) worth of Indian cash shares in the previous three sessions.
THE GOVERNMENT’S TURN
Yet traders still believe the government will need to step up to support the rupee with fresh measures to boost growth and narrow the current account deficit.
The need to act is seen as pressing as investors gear up for the Federal Reserve’s meeting on Sept. 17-18 that could determine when the U.S. central bank starts to remove its monetary stimulus,which could trigger fresh turmoil for emerging markets.
Despite the improved trade data in August,analysts also warn India’s economy continues to be hampered by a dearth of investment.
There are a multitude of stumbling blocks that could make it difficult for exporters to continue reaping the benefits of the rupee’s slide,some analysts said. These hurdles range from erratic taxes throttling special export zones to a cash crunch and clogged ports.
Meanwhile,although the government has been able to cap the trade deficit in June by targeting gold imports through duties and restrictions,that will be sorely tested when India’s festival season kicks in starting this month – a period that traditionally leads to a spike in demand for the yellow metal.
“Gold imports bill has shrunk significantly. However,the test for gold imports will come in the coming four months because this is the festive time so the demand destruction we saw over the last few months may see some reversal because of the seasonality,” said Shubhada Rao,chief economist at Yes Bank.
“A euphoric day for Indian equity markets. Heavy dose of short-covering on the back of receeding risk of military intervention in Syria at the same time,positive vibes created by new Governor of RBI Raghuram Rajan drove stocks upward. Over the last few trading sessions,Indian Rupee continues to recover thanks to a broad based buying of emerging market currencies against the US Dollar. Merchandise trade deficit for August was lower than July at USD 10.9 billion v/s 12.27 billion over in July13 and USD 15.5 billion in August of last year. A double idigit growth in exports and stagnant imports have helped trade deficit contract. Over the near-term,as far Rupee goes,63.70/80 is a key level on spot,as a breach could expose levels of 63.00/62.50 as well. On the upside,we expect US Dollar to remained capped around 65.20/50 levels on spot. Nifty to stay ranged between 5950 and 5650,as bulk of short covering demand seems to have dissipated from the system,says Anindya Banerjee,currency analyst,Kotak Securities.