Indian stocks and bonds closed higher on Wednesday after the new Reserve Bank of India (RBI) governor, Shaktikanta Das, took charge. A rally in the global markets on hopes of improvement in trade talks between the US and China further boosted investor sentiment.
The rupee, however, declined by 16 paise to close at 72.01 against the US dollar amid strengthening of the greenback and rising crude oil prices.
The benchmark BSE Sensex surged 629 points, or 1.8 per cent, to end at 35,779, while the Nifty 50 index rose 188 points to 10,738. The 10-year government bond yield ended at 7.41 per cent, down 12 basis points over the previous day’s close of 7.53 per cent. The yield was 7.63 per cent at the start of the month, and had climbed to 8.2 per cent in September. Financial stocks HDFC, HDFC Bank and ICICI Bank were the biggest contributors to the Sensex gains. All the 30 components of the Sensex ended in the green.
Market players said the optimism in the financial markets was on hopes that the new RBI governor would take steps to boost growth and relax some of the curbs faced by banks and non-banking financial companies (NBFCs).
“Das is an experienced bureaucrat who worked in the government in various capacities. Thus, he may be better able to handle the working relationship between the RBI and the government. His views on surplus reserves and the role of the RBI board merit tracking,” said Gautam Chhaochharia, head of India research, UBS.
Key European and Asian markets rallied as much as 2 per cent on Wednesday. Experts say the decline in the 10-year US Treasury yield to 2.88 per cent has triggered risk-on sentiment globally.
Foreign brokerage Morgan Stanley issued a note on Wednesday with a Sensex target of 42,000 for December 2019.
“After a volatile 2018, equities could be poised for better returns in 2019,” said Ridham Desai, managing director of Morgan Stanley. “Fundamentals, both macro and corporate, appear to be at the start of a new up cycle, valuations are at mid cycle, and market sentiment or psychology looks depressed. On balance, equity shares appear to offer more upside than downside.”
Shares in the broader market saw sharp gains with the NSE Midcap 100 index gaining 2.64 per cent and the NSE Smallcap 100 index rallying 3 per cent.
“We expect market performance to broaden and hence also like mid-caps where the forward growth is not reflecting share price performance,” Desai said.
Domestic institutional investors (DIIs) were net buyers to the tune of Rs 11 billion, while foreign portfolio investors (FPIs) sold shares worth Rs 13 billion, continuing their selling spree. FPIs have been net sellers in four of the eight sessions this month.
There was buzz in the market that the Narendra Modi government might take a populist turn following the latest electoral setbacks. Experts say such a scenario has not been priced in and would negatively impact the markets.
“So far, the government has maintained fiscal discipline and commitment despite revenue pressure. Our base case remains that it (populism) is unlikely, given a lack of historical precedent and the political imperative to keep inflation under check too. Also, populism per se is not easy to turn on at short notice at the ground level and the election is 3-4 months away,” said Chhaochharia