Market at 2-year high on GAAR deferment, rate easing hopes

The stock markets closed at a two-year high on Monday, after inflation slowed to its lowest level in three years and the government deferred the implementation of controversial rules, General Anti-Avoidance Rules (GAAR), to 2016. Stocks in the realty and banking space led the surge in the market.

The benchmark BSE Sensex rose 1.23 per cent, or 242.77 points, to 19,906.41, the highest closing since January 6, 2011, while the 50-share NSE Nifty ended at 6,024.05, up 72.75 points, or 1.22 per cent.

Inflation based on wholesale prices for December 2012 rose 7.18 per cent from a year ago, the slowest since December 2009. This, coupled with the Reserve Bank of India’s (RBI) statement on December 18, 2012 that the “monetary policy must shift toward aiding economic growth”, cemented hopes of interest rates cuts later this month. RBI is scheduled to meet on January 29 for the third quarter policy review.

The government’s decision to delay implementation of GAAR by another two years was hailed by market experts, who said it will bring in more clarity and attract greater portfolio flows.

“Today’s announcement regarding GAAR provides more certainty in the minds of investors, which is a big relief. So now, only if you are using treaties to avoid taxes do you end up in the GAAR net. The good part is that the rules are on prospective basis and not retrospective. Overall, it is a big relief and a win-win deal with no loopholes left out,” said Manish Sonthalia, fund manager, Motilal Oswal Asset Management.

Vikas Khemani, president and head, institutional equities, Edelweiss Financial Services, agreed. “It is a positive development for the market. We expect more such positive stream of news, including interest rate cut, in the run up to the Union Budget,” he said. “We expect the market to touch a new all-time high anytime during the year.”

Foreign institutional investors (FIIs) on Monday net bought shares worth Rs 611 crore, while domestic investors sold stocks worth Rs 1,210 crore, according to provisional data on the National Stock Exchange. After pumping in a record Rs 1.3 lakh crore into Indian equities in 2012, FIIs have invested more than Rs 9,000 crore so far in 2013.

Most sectoral indices, with the exception of auto and healthcare, ended positive on Monday on the BSE. The biggest gainers were the realty and IT index, which rose five per cent and 2.6 per cent, respectively.

Among the biggest gainer on the Sensex was ONGC and Infosys, which rose 4.3 per cent and 3.5 per cent, respectively. Infosys rose 17 per cent after announcing its December 2012 quarter results on January 11. HDFC and ICICI Bank, too, rallied nearly 2 per cent each.