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INDIAN equities surged to new highs on Monday while the rupee appreciated to a four-month high against the dollar with the markets saluting the Bharatiya Janata Party’s (BJP) spectacular wins in the Madhya Pradesh and Rajasthan elections and the close win in Chhattisgarh. Investors believe the strong mandates won by the BJP will help it form a government at the Centre after next year’s general election.
The Nifty ended Monday’s session at a 6,363.90 points, a lifetime high, putting on 1.66% over Friday’s close after hitting 6,415.25 intra-day. The Sensex too closed at an all-time high of 21,326.42 points, up 1.57%, after touching 21,483.74 during the day. The rupee rose for a fifth straight session on hopes of more dollar inflows, ending at 61.14, up from 61.41 on Friday. It has gained 2% since last week.
Foreign institutional investors (FIIs), who have bought nearly $18.5 billion of equities since January, picked up $405 million worth of Indian shares on Monday —their biggest single-day purchase since September 19, taking their month-to-date tally to nearly $800 million.
“The outperformance of the Indian market could continue for some more time because the euphoria about local developments is for the time being, taking precedence over global concerns,” observed Manishi Raychaudhuri, MD and head of equity research, BNP Paribas. Raychaudhuri pointed out that while concerns about the tapering of stimulus by the US Fed might crop up from time to time, the impact of such concerns on the Indian market could be far lower than that seen in mid-2013.
Nandan Chakraborty, MD, Institutional Equity Research, Axis Capital, felt the rally, driven by hopes of a stable government at the Centre, could be short-lived. “Since the FIIs have been the dominant investors so far, the Fed’s moves on tapering would need to be watched,” he said, adding the Congress’ response to its defeat — whether it would spend more risking the fiscal deficit — would also be closely tracked between now and the elections. He said apart from themes like the rural space and exports, the markets may start looking at early cyclicals.
The markets perceive BJP’s prime ministerial candidate Narendra Modi as business-friendly and believe a BJP-led government will kickstart investments by removing bottlenecks and speeding up clearances.
Brokerage firm CLSA said the prospects of a stable government led by the BJP, after the 2014 general elections, are rising and the key factor is