Sensex & Nifty surge to 3-year highs on Fed QE hopes, China GDP

Written by fe Bureau | Mumbai | Updated: Oct 19 2013, 05:40am hrs
Benchmark indices advanced over 2% on Friday to their highest level in three years backed by aggressive foreign institutional buying amid speculation capital inflows will accelerate as the US Federal Reserve may postpone the tapering of its quantitative easing (QE) programme.

The Sensex surged 467.38 points or 2.29% to end at 20,882.89, its highest close since November 2010. The 50-share Nifty advanced 143.50 points or 2.37% to end at 6,189.35. Friday's ascent was led by banks and financial stocks, with the banking index the top gainer among 13 major indices listed on the exchanges.

Provisional data from stock exchanges also showed that foreign institutional investors (FIIs) were net buyers of Indian equities for the 11th consecutive day the longest run of stock purchases since May this year. Overseas funds net purchased $285 million of Indian equities on Friday, thus taking their month-to-date tally to $1.5 billion and the year-to-date tally to $14.9 billion the second-largest after Japan among 10 Asian markets, Bloomberg data showed.

Chicago Fed president Charles Evans said late on Thursday that the US Federal Reserve should not be paring bond purchases because the government halted data used to gauge the economys health during its 16-day shutdown.

The up-move in the rupee, which touched its three-month high to below 61 per dollar, also boosted sentiment. However, the rupee pared its gains to end at 61.265 against the dollar, compared with Thursday's close of 61.22. Market experts said the stability in the rupee and better-than-expected earnings have lent support to Indian equities and resulted in reduced volatility.

"Indian equities are very well supported by the stability in the rupee, which was the main variant causing volatility in the market. As a result, we may continue to see participation from FIIs and some support from their domestic counterparts... The earnings season has kicked off very well, with better-than-expected results from some of the heavyweights like Reliance, HDFC Bank, said Vikram Dhawan, director, Equentis Capital, a UK-based investment analytic and advisory company.

Profits at all six Sensex companies that have announced Q2 earnings so far have exceeded or matched Street estimates. About 47% of the Sensex companies had missed forecasts in the previous quarter, Bloomberg data show.

India's largest copper producing company, Sesa Sterlite, gained 6% to its highest level since January. Other front-line metal stocks also gained in the range of 2-6% on hopes of demand improvement after China's economic growth quickened for the first time in three quarters, and its Q3 GDP grew the fastest this calendar year. Official data showed China's GDP rose 7.8% from a year earlier.

Other notable gainers include ICICI Bank (4.4%), HDFC Bank (3.5%), HDFC (3.2%), Reliance Industries (3%). Shares of Larsen & Toubro gained 4.2% before its Q2 results that were announced after market hours.

Net profit at Indias largest engineering company dropped 14% to Rs 978 crore from a year earlier. According to Bloomberg estimates, analysts were expecting the company's net profit at Rs 894 crore for the quarter ended September.

Market breadth was strong on Friday, with 29 out of 30 Sensex companies ending in the green. Overall, 1,417 stocks advanced compared with 1,075 that ended weak, stock exchange data showed. The CNX Bank Nifty surged almost 4% followed by BSE Metal index that gained 3.3%, BSE Capital Goods (3%), and BSE Realty (2.8%).

The India VIX, which gauges the cost of protection against losses in the Nifty, declined 4.5%, the lowest level in two months. VIX has slumped 25% since the beginning of this month after steps taken by the central bank and the government resulted in rupee stability and a lower current account deficit.