Sensex greets UPA with 2,111 pt rally

It was the shortest trading session in the history of Indian stock markets, lasting a little over a minute and generating wealth of Rs 5,66,881 crore for investors.

Buoyed by a clear mandate in favour of a Congress-led coalition, key indices hit the upper circuit limit twice in the first few seconds of trading, forcing the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) to suspend trading for the day a little before noon (see chart). The gains were attributed mainly to short covering by traders, who expected a bull run till the next Budget in June.

Shankar Sharma, director, First Global, said: “This is an absolute first. The quality of the mandate, which indicates that we are going to see a stable government, has created this situation.”

Trading had to be suspended within the first minute for two hours after the market opened at 9.55 am. Trading resumed at 11.55 am, only to close in a few seconds as stocks surged further, triggering an automatic shutdown for the rest of the day.
 

TOP GAINERS
	Price (Rs)	% Chg
Larsen & Toubro	1237.15	25.20
DLF	322.30	24.85
ICICI Bank	706.65	23.01
Reliance Comm	285.60	23.00
Reliance Infra	1001.35	22.30
BHEL	2076.80	21.64
Jaiprakash Asso	170.55	21.30
Reliance Ind	2359.20	21.09
HDFC	2341.60	20.96
SBI	1577.95	20.25

The BSE Sensitive Index, or Sensex, closed at 14,284.21, up 17.34 per cent, or 2,110.79 points. NSE’s S&P CNX Nifty closed at 4323.15, up 651.50 points, or 17.74 per cent.

Compared to the Indian markets, the Asian markets were mixed. The Hang Seng rallied 1.5 per cent and Straits Times rose 1 per cent. The Nikkei closed 2.5 per cent lower.

In the past five years, trading has been halted three times because indices hit the lower circuit. The first of the three lower circuits was triggered on May 17, 2004, a few days after the Congress-led United Progressive Alliance (UPA), with outside support from the four Left parties, came to power in the general elections. The Sensex had crashed 11.40 per cent on that day.

Today, the bull-run made it difficult for sellers to place orders. At 9.55 a m, when the markets broke the circuit filter in barely 60 seconds after the start of trade, investors kept struggling to place orders online. They received a message reading “order could not be confirmed”.

When the buy-sell webpage was refreshed, the markets had already halted trading when the circuit filters were triggered again, and the next message said, “orders could be executed only during trading hours”. The story was repeated at 11:55 a m.

With trading remaining limited to a few seconds, volumes were minuscule. Only Rs 2,896.67 crore worth of trade took place in the cash and the futures and options markets on both BSE and NSE together. Of this, the futures segment accounted for Rs 2,599.35 crore.

Institutional investors were active in the market but less than the surge would suggest. Provisional data from BSE show that net buys from foreign institutional investors were Rs 44.64 crore and domestic institutional investors Rs 8.41 crore.

“We feel that market fundamentals would get a boost from a large amount of capital flowing in as India turns into one of the lowest risk, highest growth investment destinations globally. Election results should set the economy and market on ‘higher highs, higher lows’ path,” Credit Suisse research head Nilesh Jasani said in a report.

“If the market rises sharply again, investors should be cautious,” said Andrew Holland, CEO (institutional equities and equity proprietary trading), Ambit Capital.

In Delhi, Finance Secretary Ashok Chawla said the Securities and Exchange Board of India (Sebi) was keeping close tabs and there was nothing unusual about the day’s market movement.

“It was expected that markets will do well and that is what we saw in the morning. Sebi is keeping a watch on the situation... we will see how it plays out tomorrow…. It is a good sign, but we would of course have to watch that we don’t have too much volatility (on the stock markets),” he told reporters.

Short covering was a key reason for today’s surge. Market players said bears had created short positions in anticipation of a hung Parliament. However, the change in the fortunes of UPA, which finally won 262 seats, stunned them. “Just as the bulls did not get a chance in the January 2008 mayhem, bears are completely stuck now,” said a broker.

Of the 846 stocks traded on BSE today, 833 advanced, 11 declined and two were unchanged.

All the BSE sectoral indices were up. Realty led the rally with a 23.45 per cent rise, followed by consumer durables (21.90 per cent), the Bankex (19.18 per cent) and oil and gas (19.11 per cent). Among the Sensex stocks, BHEL, L&T, DLF and ICICI Bank also rose significantly. SBI, Jaiprakash Associates, Reliance Infra, Bharti Airtel, Reliance Communications, Reliance and HDFC were all up over 20 per cent.

Market players believe that this rally could continue tomorrow, primarily because today’s sharp spike will trigger margins calls. As a result, short-sellers will be forced to buy tomorrow to square off their positions.

Going forward, markets are expected to add 10 to 15 per cent till the new government presents the Budget in late June or early July. “But the rise will not be linear,” added Sharma.

Some players said this was a good time to raise cash by booking profits. Amitabh Chakraborty, head (equities), Religare Securities, said: “This is initial euphoria. Though the price-earnings multiple is being re-rated, the earnings outlook has not changed.”

He said there would be ample opportunities in the next two-three months to re-enter the market.