The sudden burst of reform measures by the Congress-led United Progressive Alliance (UPA) government and Federal Reserve Chairman Ben Bernanke’s third round of bond-buying programme has brought the bulls back into the driver’s seat.
India’s key stock market indices — the Sensex and the Nifty — which closed at 14-month highs on Friday, are expected to move up further after the government has allowed foreign supermarkets to set up shop in India with 51 per cent ownership and overseas carriers to buy 49 per cent stake in domestic airlines.
The bold announcements, which came after the close of Indian markets on Friday, propelled Nifty futures contracts traded on the Singapore Exchange (SGX) higher, indicating a steeper opening for Indian shares, when they will open for trade on Monday.
The near-month Nifty futures contracts settled at 5,650 in electronic trading at SGX on Friday, 1.2 per cent higher than spot Nifty’s final close of 5,577 on the National Stock Exchange.
American Depository Receipts (ADRs) of Indian firms listed on the US bourses also rallied on Friday.
“In the short term, you will see another rally. The markets could go up by another two per cent on Monday. Very soon 19,000 levels on the Sensex will be upon us,” said Saurabh Mukherjea, head of equities at Ambit Capital. The 30-stock Sensex, soared 443 points, or 2.46 per cent, to close at 18,464.27, its highest since July 2011.
He, however, said he was not looking for 20,000-mark on the Sensex, as there would be significant equity issuances. “Lot of capital will be soaked out through share sales and disinvestment programmes,” he said.
The government’s move to increase diesel price by Rs 5 a litre has also raised some expectations that the Reserve Bank of India (RBI) may cut rates on Monday, when it announces its mid-quarter monetary policy.
“The RBI had said the government should move to rein in the fiscal deficit. Now that the government has hiked diesel prices, we expect the RBI also to cut rates,” said VK Sharma, head of business, private broking & wealth management, HDFC Securities. The broking firm in a note to its client said the Nifty was likely to move towards its next intermediate highs of 5,630 in the coming week.
However, experts are also sounding a note of caution as all good news has come in a single shot.
“People will start expressing doubt on what about the next big step. Markets will now be watchful of what the next positive news flow will be,” said U R Bhat, managing director at Dalton Capital Advisors. “Most of the flows, coming into the market, are chasing news events. Real long-term money will not chase news-based flows.”
Opposition by an important coalition constituent, the Trinamool Congress, which on Friday gave a 72-hours ultimatum to the government to rollback foreign direct investment in multi-brand retail, will also curb investors’ enthusiasm.
Technically, Nifty will face immediate hurdle in the range of 5,630-5,650 next week which is the February 2012 peak and 61.8 per cent retracement of the entire fall from 6,335 to 4,531 levels, according to online brokerage ICICIdirect. “A sustained closing above the resistance level can see the index testing 5,740 in the near term,” it said in a note to clients.
Globally, too, stock markets are in a buoyant mood after a new set of bond buying programs announced by the European Central Bank and the US Federal Reserve.