Markets take positives from weak GDP data, strong global cues

Written by fe Bureau | Mumbai | Updated: Dec 2 2012, 05:14am hrs
After conquering mount 19K a day before, Indian equities extended gains on Friday amid strong global cues and weak GDP data, which raised hopes of a cut in key policy rates in the coming weeks. In doing so, the benchmark indices capped a spectacular week, with the BSE Sensex crossing the psychological 19,000-mark and logging stellar gains of 4.5% to touch a 19-month high.

Gross domestic product (GDP) slid to 5.3% for the quarter ended September compared with 5.5% in the previous quarter and 6.7% in corresponding quarter last fiscal. But the market chose to see the positive side of of these numbers, hoping that the weak GDP data would force RBI's hand to bring down interest rates during its next policy review. Despite their stance on inflation, the RBI is likely to come under immense pressure on easing rates in the coming quarters. We maintain expectations of another 50 bps easing on the repo by March 2013, and possibly more going forward, said Gautam Trivedi, MD & head of equities, Religare Capital Markets.

The 30-share BSE Sensex ended Friday with gains of 169 points or 0.88% to 19,339, while the broader 50-share Nifty added 54.8 points or 0.94% to close at 5,879. On Friday, FIIs bought shares worth R1,611 crore, while domestic institutional investors sold shares worth R798 crore, BSE data show.

FIIs have purchased stocks worth $2billion in November, taking the year-to-date purchases to $20.07 billion. The benchmark BSE Sensex is up about 25% in the year to date and is among the best performing among emerging markets on the back of foreign inflows. Market participants expect the FII floodgates to remain open if the reform measures go through.

The mood was upbeat throughout the week. On Tuesday, ratings agency Moody's kept India's credit outlook as stable, saying the country had a high savings rate and its private sector remained competitive. On Thursday, foreign brokerage Goldman Sachs upgraded Indian stocks to 'overweight' from 'market-weight', setting a December 2013 target of 6,600 points for the 50-share Nifty index, which is about a 12.2% upside from the index's current levels. The brokerage cited growth recovery and inflation moderation for its revised target.

Earlier this week, brokerage Morgan Stanley set a probability-weighted target of 23,069 for the BSE Sensex for December 2013, implying a 26% upside, citing a steady recovery in broad earnings growth.

Overseas newsflow was positive as well. Greece's official creditors, including the IMF and EU, reportedly agreed on a deal to lower the country's debt burden. Expectations also rose that there would be a deal to avoid the US fiscal crisis.

Among its peers, most of the Asian markets edged higher on Friday as Japans industrial production rose unexpectedly and its cabinet gave then nod for an economic stimulus package. Japan's industrial output in October rose 1.8%, the first time in four months.

The Straits Times and the Shanghai Composite rose the most at 0.79% and 0.85%, respectively. The Kospi and Jakarta Composite were the ones to buck the trend, with the latter ending lower by nearly a percentage point. Among the major European indices, the FTSE 100, the DAX and the CAC were all trading marginally in the green at about 4.00 pm India time.

Back home, 23 of the 30 Sensex stocks advanced on Friday. In the broader market, breadth was strong with 1,687 stocks traded on the BSE ending higher against 1,286 declines. Most of the 13 BSE sectoral indices ended in the green. The Power, Bankex, Consumer Durables, Oil&Gas indices gained more than 1% each. The Metal index rose the most at 2.07%. Realty, FMCG and Auto indices bucked the trend and slid marginally.

The NSE cash turnover on Friday was at R20,386 crore, while the six monthly daily average is about R11,000 crore. Turnover in derivatives was about R1.17 lakh crore and the daily average for the past six months is R1.26 lakh crore. India VIX, a volatility index based on the S&P CNX Nifty index option prices, slid 1.4% on Friday to 15.15.