The government's bold measure to sharply hike diesel prices coupled with the third round of quantitative easing by the US Federal Reserve and strong support from foreign institutional investors pushed India's benchmark share indices to their seven-month highs in the eventful week ended September 14.
The 30-share Sensex ended up 715 points or 4% at 18,464 and the 50-share Nifty ended up 219 points or 4.1% at 5,578 near seven-month closing highs. On February 21, 2012, the Sensex had ended at 18,429 and the Nifty ended at 5,607.
Over fifty per cent of the gains during the week were registered on Friday after the government late Thursday kicked off its reform process by hiking diesel prices in an effort to contain the fiscal deficit. Further, the rally in global stocks in wake of the US Fed's decision of $40 billion-a-month bond buying programme also boosted investor sentiment.
The sharp appreciation of the Indian rupee also favoured foreign institutional investors as they turned aggressive buyers on Friday pumping nearly half a billion dollars. According to the provisional data released by the Bombay Stock Exchange FIIs were net buyers to the tune of Rs 2,834 crore.
The partially convertible rupee closed at 54.30/31 per dollar, gaining 2.1 percent from its close of 55.43/44 on Thursday to mark its biggest single-day gain since June 29.
In the second major oil sector reform after petrol decontrol of June 2010, the government late Thursday capped subsidised domestic liquefied petroleum gas (LPG) for a consumer to six per year. For a consumer using 12 LPG cylinders annually, the extra outgo on six additional cylinders at current market price will be Rs 2,106. Also, the diesel price was increased by Rs 5 a litre, while the excise duty on petrol was reduced by Rs 5.30 a litre to avoid a price increase.
India's 14 percent increase in diesel prices announced late Thursday was widely seen opening up the prospect of further reforms.
On the economic front, India's headline inflation rose to 7.55% in August as prices of potato, wheat and pulses as well as manufactured items soared. Inflation, as measured by the Wholesale Price Index (WPI), was 6.87% in July.
Other encouraging developments from the global front include, the Germany's Constitutional Court approving the establishment of an European Stability Mechanism in which Germany will contribute 190 billion euros.
The gains during the week were led by metals, capital goods, interest rate sensitive sectors followed by oil and gas and IT.
Among the sectoral indices on the BSE, metals, capital goods and realty indices ended over 5% while Bankex, Auto, Oil and Gas gained over 4% each and IT index ended 3.7% higher.
Metals shares firmed up tracking rally in global commodity prices. Global commodities hit a multi-month high in foreign markets today, after the US Federal Reserve announced a big mortgage-based bond buying programme until the jobs market improved. Hindalco was the top Sensex gainer up 10.5% while Tata Steel jumped 8% and Jindal Steel rose 5.7%.
Capital goods shares which witnessed selling pressure in previous weeks surged on short covering and value buying at lower levels. L&T ended up 8.4% and BHEL gained 1%.
Interest rate sensitive shares gained on hopes that the central bank would ease key policy rates at its policy meet on Monday.
In the banking space, ICICI Bank gained 7%, SBI 4%, HDFC Bank 3.5% and HDFC rose 5.3%.
In the realty segment, Unitech jumped 14.2% and DLF gained 6.2%. Gainers in the auto segment were led by Tata Motors up 10%, Maruti Suzuki 4.3% while Bajaj Auto and Hero MotoCorp rose over 3% each.
Software exporters gained after the stimulus measures announced by the US Fed to boost the sagging economy. Infosys ended up 5.5%, TCS gained 2.1% and Wipro rose 2.5%. All these companies gain most of their revenues from exports to the US.
In the oil and gas space, index heavyweight Reliance Industries ended up 5.7% while ONGC ended up 2%.
Coal India which had also witnessed selling pressure in the previous weeks ended up 6%.
The government also continued its reforms late Friday and allowed politically-risky 51% FDI in multi-brand retail, 49% investment by foreign airlines in aviation sector and sale of equity in four PSUs.
The government on Friday cleared stake sale in Nalco, MMTC, Hindustan Copper (HCL) and Oil India. The Cabinet approved divestment of 12.15 per cent government stake in Nalco, 9.33 per cent in MMTC, 9.59 per cent in HCL and 10 per cent in Oil India.
The Cabinet on Friday provided an engine to fund the digitisation drive by raising the foreign direct investment (FDI) limit in broadcast services to 74 per cent across the board. The department of industrial policy and promotion had proposed the FDI limit in broadcast carriage services providers, including Direct-to-Home (DTH), Head-end in the Sky (HITS) and cable television must be uniform. At present, 49 per cent FDI is allowed in cable TV and DTH, while it is 74 per cent in HITS.
The markets will be looking forward to advance tax numbers, global cues and RBI policy stance on Monday.