Nifty at 2-yr peak as fiscal cliff deal eases concerns

Written by fe Bureau | Mumbai | Updated: Jan 2 2013, 06:16am hrs
SensexSensex rallied to a 20-month peak
The Nifty closed at a two-year high on Tuesday while the Sensex rallied to a 20-month peak as foreign investors continued shopping for stocks after the US Senate and the White House struck a last-minute deal to delay proposed tax hikes and spending cuts by at least two months. India was among top-performing markets in 2012, with the Nifty gaining 22% in dollar terms and foreign investors buying equities worth $24.5 billion.

Shrugging off concerns on the widening current account deficit which hit 5.4% of GDP in the three months to September and sluggish core sector growth of 1.8% in in November, the Sensex gained 0.8% to close at 19,580.81 points after hitting an intra-day high of 19,623.76 points, the highest level since April 26, 2011.The broader Nifty ended the day with gains of 0.77% to close at 5,950.85 points. Most global markets remained closed for the New Years Day holiday.

Having turned in a superlative performance last year, with investors convinced that valuations were reasonable, the Sensex now trades just a shade above its long-term valuations of 15 times one-year forward earnings. At the current level of 19,580, the Indian market commands a multiple of 13.8 times estimated earnings for 2013-14 and is cheaper than both Indonesia and Thailand. Last year, India saw more than its fair share of foreign flows, attracting more money than South Korea. Most foreign brokerages are currently overweight India with expectations of a rate cut in January and more policy reforms running high.

The passage of the US Senate Bill, that would make permanent the tax cuts for most households, continue expanded unemployment benefits and delay automatic spending cuts for two months, cheered the sentiment. If the agreement becomes law, it would avert most of the immediate pain and postpone Congress fiscal feud for just two months until a February fight over raising the $16.4 trillion debt limit.

Positive sentiment was visible across the board as all sectoral indices registered gains and the market breadth remained strong. On BSE, nearly 2,000 stocks gained ground, as against less than 1,000 stocks that ended in the red. The BSE Metal and BSE Realty indices gained more than 2% each.

Interest rate sensitive sectors were also aided by hopes of a rate cut. Shares of banks and financial services, realty and automobiles companies were among top gainers on Tuesday.

Foreign institutional investors (FIIs), who are usually inactive during the early part of January, continued shopping. According to provisional data, FIIs net bought $121.61 million worth of shares on Tuesday. Last year, FIIs bought Indian equities worth $24.5 billion the second highest in more than 14 years.

Among blue-chip stocks, Jindal Steel benefitted the most in Tuesdays trading as the scrip rose 3.26%. Hindalco Industries (up 2.72%), Tata Steel (2.33%), Sterlite Industries (1.89%), and Coal India (1.39%) were the other top gainers within the metals and mining space. Other top gainers included ICICI Bank (up 1.92%), BHEL (1.9%), Maruti Suzuki (1.82%), SBI (1.77%), Tata Motors (1.28%), Mahindra & Mahindra (1.21%), Larsen & Toubro (1.15%), and Hindustan Unilever (1.12%).