The Sensex surged to another record on Thursday as a festive spirit took hold of the market ahead of Diwali, seemingly undaunted by speculation elsewhere that the US Federal Reserve may withdraw its stimulus programme sooner than expected.
While this led to emerging markets dropping the most in a week, India bucked the trend as foreign institutional investors (FIIs) rushed to stock up on shares, pushing the Sensex to a second closing high in a row. It ended at 21,164 points, sending derivative volumes on the BSE to over . 2.06 lakh crore, also a record. The investor optimism was borne out by data released after the markets closed, suggesting that the trend may be sustained. The output of eight core sector industries rose at its fastest pace in a year in September, the government said, suggesting that India's industrial economy may finally be bottoming out. There was also good news on the fiscal front. A smart pick-up in revenue helped the government keep September's fiscal deficit at almost the same level it was in August, giving rise to hope that the target for the full fiscal year may be met despite three-fourths of the annual limit having been reached in the first half itself.
The data could persuade investors to keep pouring back ahead of Diwali, signalling a blockbuster muhurat trading session on Sunday.
An ET poll said on Thursday that the Sensex is likely to touch 22,000 by
January.
The 30-stock benchmark was 92 points away from its lifetime intraday high of 21,256 that it touched on January 8, 2008. The broader index CNX Nifty of NSE rose 0.76% to close at
6,299, the highest level for the index since November 9, 2010. The Nifty is 58 points away from its lifetime intraday high. The derivative turnover on the NSE stood at over . 3.07 lakh crore.
The exuberance on Dalal Street isn't irrational, said Pankaj Vaish, managing director, head of markets, South Asia, Citibank. FIIs Don't Want to Miss Out
"Foreign institutional investors totally understand that the macro fundamentals are challenging, inflation is stubborn, growth is relatively weak, but at the same time they are really worried about missing a big upside move," he said in an interview. "Particularly if it becomes election-driven, as they missed out in 2009, they just don't want to miss that possibility this time." Reserve Bank of India Governor Raghuram Rajan had raised the repo rate on Tuesday by a quarter percentage point to curb inflation. The speculation about the US winding down its stimulus programme points to concerns about the rise being sustained.
"If the tapering starts off sooner than expected, market will become nervous and start correcting," said Sudip Bandyopadhyay, MD and CEO, Destimoney Securities. India was an exception to regionwide pessimism. Asian markets fell on the taper talk. The Hang Seng dropped 0.42%, the Shanghai Composite fell 0.87% and the Nikkei 225 declined 1.2%.
FIIs bought Indian stocks worth Rs 1,875 crore on Thursday, according to provisional figures. Domestic institutional investors, however, sold stocks amounting to Rs 833 crore. FIIs have pumped in close to $16 billion this year, out of which nearly $4 billion came in the past couple of months.
"FIIs have been big investors in the past two months, but given the macroeconomic fundamentals and the corporate results for the second quarter it is not clear whether this type of strong FII inflows will continue," said UR Bhat, managing director at Dalton Capital Advisors. Most of the index companies have beaten market expectations despite the overall economic slowdown, which has put Indian markets on a stronger footing compared with what it was a few months back.
The eight core sector industries — coal, crude oil, refining, steel, cement, natural gas, fertilisers and electricity — have a 38% weight in the Index of Industrial Production (IIP), making it a good lead indicator of industrial production.
The eight core sector industries expanded 8% in September, the most since the same month last year and well ahead of 3.7% in August, according to data released on Thursday. The growth is on the back of a strong 8.3% rise in September lastyear, which makes it that much more robust.
"The encouraging pick-up in core sector growth along with the double-digit rise in merchandise exports suggests IIP may post a modest improvement in September 2013 compared with the first five months of this fiscal," ICRA economist Aditi Nayyar said in a note. Prime Minister Manmohan Singh's economic advisor C Rangarajan said India's growth this year would be 5% or slightly faster, boosted by farm production and exports. The government is counting on a spurt in the second half of the year to take growth to more than 5% after the economy expanded just 4.4% in the April-June quarter. The government has rolled out a series of measures to revive the economy, which slowed to a decade-low 5% in the year to March.
On Thursday, State Bank of India rose 4.33% to close at Rs 1,755. The bank announced a reduction in interest rates on bulk deposits (Rs 1 crore and above) across maturities. Tata Steel, Gail, Tata Power, ICICI Bank and Coal India rose 1.8% to 2.45%. Dr Reddy's Laboratories fell 2.64% to Rs 2,455 after reporting its earnings.
Market breadth, indicating its overall health, was positive. On BSE, 1,319 shares rose and 1,161 shares fell. A total of 177 shares were unchanged. The breadth alternatively swung between positive and negative from early afternoon trade.
