Election euphoria pushes stock market indices to all-time high

Rupee hits two month high

The Indian markets on Monday emerged as one of the best performers in the Asia-Pacific region, largely on the euphoria after results for state elections announced over the weekend.

The benchmark indices — the BSE Sensex and the NSE Nifty — closed at their all-time highs. The Sensex rose 329.9 points, or 1.6 per cent, over previous close to end at 21,326.42. The Nifty surged 104 points, or 1.7 per cent, to 6,363.9.

Motilal Oswal Financial Services Joint MD Raamdeo Agrawal said the chance of a clear-majority mandate was seen as the primary driver of optimism.

“There are extraordinary things happening in the political sphere; these are a positive for the market… The markets could be at much higher levels till the next elections. Upside could be 1,500 points, while there’s limited downside risk.”

Ambit Investment Advisors CEO Andrew Holland said the focus, in the interim, could shift to global cues.

“Markets will start focusing on global issues, such as tapering (of its monthly bond-buying programme by the US Federal Reserve), which looks delayed till January.     

We have begun a switch away from defensives to industrials and services,” Holland said.

Interestingly, defensive stocks underperformed the broader indices on Monday, while the indices tracking the healthcare and fast-moving consumer goods sectors rose 0.17 per cent and 0.21 per cent, respectively.

The S&P BSE Capital Goods index was up 3.14 per cent over its previous close. The index tracking banking stocks rose 2.93 per cent, while the realty index surged 2.61 per cent.

Foreign institutional investors (FIIs) were net-buyers of stocks worth Rs 863.77 crore on Monday, according to provisional exchange figures. Their domestic counterparts net-sold to the tune of Rs 743.93 crore.

SBI Mutual Fund CIO Navneet Munot said domestic institutional participation might improve. “The markets have been exhibiting a positive trend but it has been on the back of flows from foreign investors. We hope to see increased participation from domestic investors from here,” he said.

India was the second best-performing Asia-Pacific market, after Japan. The Nikkei 225 Stock Average was up 2.29 per cent on Monday.

Pushed mainly by FII inflows, the rupee also hit a two-month high against the dollar. The Indian currency rose to 61.13 a dollar — 0.9 per cent over its previous close of 61.41.

“Rupee is completely dependent on what is happening in the stock market. If this rally continues on the stock market, the rupee can remain below 61 a dollar for some time. But, beyond a point, I do not expect an appreciation in the value of the rupee, as the Reserve Bank of India (RBI) may start buying dollars to bolster foreign exchange reserves. The broad trading range for the rupee against dollar till December 31 is seen at 60.50 to 62.00 a dollar,” said Mohan Shenoi, president (group treasury & global markets), Kotak Mahindra Bank.