Markets end first week after Modi win on a high

Power stocks and SBI, which gained nearly 10%, led the charge on Friday

The markets ended the first week since Narendra Modi's election victory on a high, with the Sensex rallying 319 points, or 1.3 per cent, to close at 24,693.35 on Friday.

The index gained 572 points, or 2.4 per cent, this week while the Nifty added 164 points, or 2.3 per cent. The rally was broad-based as the BSE small-cap index rose nearly 15.7 per cent while the BSE mid-cap index added 11.6 per cent.

The gains on Friday - the most in almost two weeks - were primarily driven by State Bank of India (SBI) and power stocks. SBI rose nearly 10 per cent to Rs 2,755.25, its highest since May 2011. The biggest single-day gain this year for the stock of the country's largest lender was due to a surprise improvement in asset quality and lower-than-expected profit decline.

Power companies such as NTPC and Tata Power rallied more than 4 per cent each on hopes that the new government will take steps to address the issues that have plagued the sector.

Hopes that the PM-in-waiting will soon announce measures to boost economic growth and address macroeconomic challenges have led to sharp gains in shares of companies dependent on the domestic economy.

"The business community has a very high confidence level in Modi's ability to revive the economy. Industrial and infrastructure investments are likely to accelerate. However, there is also a risk that the government might not be able to live up to such high expectations, especially in the short term, though we remain focused on what we view as its strong long-term prospects," said Sukumar Rajah, managing director & chief investment officer, Franklin Templeton India.

The NSE CNX Nifty Index ended at an all-time high on Friday, gaining 1.3 per cent to 7,367.10, while the small- and mid-cap indices continued to outperform the benchmarks.

The benchmark indices are up 10 per cent after gaining for three straight weeks.

Investors during the week have moved their bets away from pharma and consumer stocks to those in the power and infrastructure space. Lanco Infra and Suzlon gained a whopping 80 per cent and 65 per cent during the week,

Some analysts have, however, become sceptical following the sharp gain in the market in a very short period. Deutsche Bank downgraded Indian markets to 'neutral', stating that the country's valuations are now expensive compared to its relative history to other global emerging markets (GEM).

"The recent election may well mark the start of a paradigm shift, but it is too early to tell and in the meantime, the market is expensive relative to its history relative to GEM, despite the fact that GDP growth rates are unlikely to return to 2005-07 and 2010 levels for some time, if at all," said a Deutsche Bank report, advising its non-EM clients to wait for 'better buying opportunity'.

However, the bank's domestic broking arm has maintained its end-year Sensex target of 28,000.

The Indian market is one of the best-performing equity market in the Asia-Pacific region for 2014. According to Reuters data, the Sensex has gained 23.71 per cent in dollar terms so far in 2014, about 100 basis points higher than Indonesia's benchmark index, which has gained 22.7 per cent.
Rupee hits 11-month high before RBI steps in

The rupee retreated from an 11-month high to fall on Friday as the Reserve Bank of India (RBI) stepped in to temper gains being sparked by continued expectations of robust foreign inflows and a rally in domestic shares.

The currency still rose 0.4 per cent for the week, posting its fourth straight weekly gain and its longest winning streak in 16 months on hopes the Bharatiya Janata Party’s landslide win last week would bring a new government willing to undertake substantial economic reforms.