)
Markets ended the first week since Narendra Modi's election victory on a high with the Sensex rallying 319 points, or 1.3% to close at 24,693.35 on Friday.
The index gained 572 points, or 2.4% this week, while the Nifty added 164 points, or 2.3%. The rally was broafd-based as the BSE small cap index rose nearly 15.7%, while BSE mid-cap index added 11.6%.
The gains on Friday -- the most in almost two weeks -- were primarily driven by State Bank of India (SBI) and power stocks. SBI gained nearly 10% 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% each on hopes that the new government will take steps to address the issues that have plagued the sector.
Hopes that the Prime Minister in-waiting will soon announce measures to boost economic growth and address macroeconomic challenges have led to sharp gains in shares of companies that are dependent on the domestic economy.
“The business community has a very high confidence level in Modi's ability to revive the economy. The 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 also ended at an all-time high on Friday, gaining 1.3% to 7,367.10, while the small- and mid-cap indices continued to outperform the benchmarks. The benchmark indices are up 10% 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% and 65% during the week,
Some analysts have however become skeptical following the sharp gain in the market in a very short period. Deutsche Bank downgraded Indian markets to 'neutral' stating that 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. As per Reuters data, the Sensex has gained 23.71% in dollar terms so far in 2014, about 100 basis points higher than the Indonesia's benchmark index, which has gained 22.7%.
The sharp gains in the market were largely supported by robust foreign flows. Overseas investors have pumped in over $7.5 billion into stocks so far this year.
