Sensex back at 29,000 levels

SBI results, moderate inflation and global cues help markets gain the most in three weeks

Indian markets on Friday rose the most in about three weeks, primarily due to State Bank of India (SBI) recording an improvement in asset quality in the December quarter. Hope of reform-oriented announcements in the Union Budget and the fact that inflation stayed well below the Reserve Bank of India (RBI)’s target boosted sentiment. A rise in global equities, owing to strong gross domestic product growth posted by Germany, further bolstered investor risk appetite.

On Friday, the BSE Sensex reclaimed the 29,000 mark, after seven trading sessions, while the broad-based Nifty closed above 8,800, the first time since January 30.

Gaining for a fourth consecutive session, the Sensex ended at 29,094.93, up 289.83 points, or 1.01 per cent, the highest rise since January 20. The Nifty gained 1.08 per cent, or 93.95 points, to close at 8,805.5.

The 30-share Sensex, which snapped its two-week losing run, is less than two per cent (587 points) below its all-time closing high. Between January 29 and February 9, the index lost five per cent (about 1,500 points) from its all-time high of 29,682, due to poor corporate earnings and fear Greece would exit the euro zone and the Bharatiya Janata Party (BJP) would lose in the Delhi Assembly elections.

Market players said the recent gains in the market, triggered by a sharp correction, were due to hope of favourable announcements in the coming Budget. “The mood in the market is upbeat. This time, investors are extremely optimistic about the Budget. They expect a lot of positive announcements,” said Gautam Chhaochharia, head of research (India), UBS.

The government is scheduled to present Budget 2015-16 on February 28.

Rakesh Arora, head of research at Macquarie Capital Securities India, said the recent correction in the market provided a good buying opportunity before a “growth-stimulating’ Budget was presented. “We are already seeing some initiatives from the government on roads, railways and power transmission and expect the coming Budget to give a fillip to these important areas of infrastructure,” he said in a recent note.

After being net sellers for five sessions, foreign investors bought shares worth about Rs 400 crore on Friday, provisional data showed.

“For now, the sentiment in the market remains optimistic. The market is heavily dependent on foreign flows. Their stance depends more on the global situation. Therefore, a resolution to the Greece issue would be critical,” said U R Bhat, managing director, Dalton Capital. He added a pre-Budget market rally would depend on “informed leaks” by sources in the government.

In his latest newsletter, Greed & fear, CLSA Managing Director Christopher Wood said for global investors, the interest in markets such as India continued to be high. He added there was a risk of profit-taking in markets “that have done well and are deemed expensive”, such as India.

In the past year, the Indian market has rallied about 30 per cent. Currently, it trades at more than 16 times its one-year forward earnings estimate.

Woods, however, said investors would be willing to pay a premium for markets such as India, which had “real sustainable growth rate” in a deflationary world. “India and the Philippines also represent a healthy diversification in a global portfolio when asset prices in so many other economies are so heavily influenced by either the cycle of QE (quantitative easing) or by developments in China,” he said in the note.

After SBI reported a 30 per cent rise in net profit and an improvement ion asset quality for the December quarter, its stock rose about eight per cent, the most in nine months. Earlier, the market had feared disappointment on this front, as most public sector banks had reported sharp jumps in bad loans. SBI’s results came as a booster to other banks, with the BSE Bankex gaining the most among all sectoral indices.

Shares of Mahindra & Mahindra gained five per cent, the second-best performing stock in the Sensex, followed by Tata Consultancy Services (up 3.1 per cent) and Coal India (2.4 per cent).

Some market players fear after a defeat in the Delhi Assembly elections, the government might turn populist. In a recent report, Nomura had said the Union Budget would reveal whether the BJP would turn “populist” or stick to fiscal discipline. “In some sectors, there are fears this might push BJP to also renege on fiscal reforms that would require spending cuts on misdirected subsides and welfare schemes,” it had said.