Foreign investors keep the party going in markets

Sensex zooms to its highest since Nov 2010 as FIIs extend purchases for 11th day

 

Stock indices rose to their highest in three years on Friday on continued foreign institutional purchases, amid hopes the 16-day US government shutdown might prompt the Federal Reserve to defer the withdrawal of its monetary stimulus.

Foreign institutional investors (FIIs) pumped Rs 1,752 crore into Indian stocks on Friday, according to provisional data, extending their purchases for the 11th straight day.

In October (till Thursday), FIIs have put about Rs 7,500 crore into Indian equities, taking the overall tally to Rs 78,600 crore since January. Analysts said the stability in the rupee vis-à-vis the dollar, which had weakened since the US shutdown early in October, played a key role in ensuring the deluge of FII money. Economic weakness due to the shutdown, coupled with uncertainty over negotiations to increase the US debt ceiling, might prompt the US central bank to delay the start of the rollback of its monetary stimulus, or Quantitative Easing (QE) 3, to the first quarter of 2014, they said. (DANCING TO FII TUNE)

“Investors feel the US shutdown has lowered the odds of a Fed tapering this year,” said Tirthankar Patnaik, director & strategist, Religare Capital Markets. “They are seeing a three-month window to put money into Indian stocks.”

BSE’s 30-share Sensex on Friday rose 467.38 points, or 2.29 per cent, to close at 20,882.89, its highest since November 2010. The National Stock Exchange’s 50-share Nifty gained 143.50 points, or 2.37 per cent, to end at 6,189.35.

Elsewhere in Asia, markets ended mostly higher on Friday tracking Wall Street’s strong close the previous night, after the US managed to avoid a debt default by increasing the debt ceiling. A pick-up in China’s gross domestic product at 7.8 per cent in July-September, in line with forecasts, also lifted sentiment.

US treasuries rose, pushing the yield on the 10-year benchmark to the lowest in 12 weeks, suggesting investors did not expect an immediate reversal of the QE3.

At home, a large chunk of the foreign institutional inflows in the recent days has been by passive funds such as exchange-traded funds, said brokers and analysts.

“Most of the money coming in has been through global exchange-traded funds. These funds have been buying across sectors,” said Vivek Mahajan, head of research, Aditya Birla Money. “Globally, risk appetite has come back with the debt ceiling issue being postponed for the time being.”

Fund managers and analysts said earnings’ performances of companies did not warrant sharp upsides in stock prices, though results had not disappointed.

Banks were among the leading gainers, sending the NSE bank index up 3.95 per cent. The bank index fell 17.2 per cent in the September quarter. ICICI Bank jumped 4.6 per cent, while HDFC Bank rose 3.4 per cent. Some investors also bought defensive stock such as those of drugmakers and consumer goods, expecting uncertainty ahead of the Reserve Bank of India (RBI)’s policy review at the end of the month. RBI is largely expected to raise the repo rate by 25 basis points, its second consecutive monthly hike.

The rupee on Friday ended five paise weaker than its previous close, at 61.27 a dollar. The currency had touched an intra-day high of Rs 60.93, a level last seen more than two months ago, on August 8 , but slipped on speculation RBI might close the special dollar-swap window for oil marketing companies, which was opened on August 28 when the rupee had touched almost 69 a dollar. A swift clarification that the swap window would remain helped the rupee rebound a bit.