Anticipation of accelerated policy measures by the NDA government, an improvement in corporate earnings, and low crude oil prices that will help Indias twin deficits also acted as catalysts for investors to indulge in value buying after a near 5% correction correction in prices in August-September.
Global investors have pumped in close to $14 billion so far in 2014, the most among eight Asian markets tracked by Bloomberg. The Sensex has gained 32% this year, the best performer among the worlds 10 biggest markets, the data show, as the BJP government which swept to power in a landslide victory in May has ended price curbs on diesel, raised natural-gas tariffs and eased rules on foreign investment in property development.
Last year, India pulled in $19.7 billion while in 2012 foreign flows hit $24.5 billion on top of a record $29.3 billion in 2010. On Friday, foreign portfolio investors were buyers for the third straight session, shopping for shares worth $290 million in the cash segment, taking their total purchases in the last two weeks to nearly $1 billion.
The Sensex closed at an all-time high of 27,865.83 points, up 1.9% or 519.50 points, the biggest single-day gain since May 12. The broader Nifty also hit a new all-time high of 8322.20 points, up 153 points or 1.87%. Benchmark indices have posted 4.6% returns in October, the biggest monthly gain since June.
Japans Nikkei soared 4.8% to a seven-year high and other Asian stocks advanced 1-2% as the BoJ unexpectedly expanded its stimulus programme and the countrys pension fund increased its allocation to foreign stocks. European stocks rose to a three-week high and US futures gained more than 1%, signalling American indices will hit new highs.
Markets dont really seem to care about what kind of stimulus we get or where its coming from, as long we get something, Bloomberg quoted Teis Knuthsen, chief investment officer at Saxo Banks private-banking unit, as saying. Central banks are trying to squeeze money into the system and as long as economic growth is good enough, all that money will be going into financial assets. What happened in Japan is very powerful for equities, and its really rippling throughout global markets, Knuthsen added.
Deutshce Bank (India) raised its Sensex target to 29,000 points by March 2015 on expectations of intensifying policy action and inexpensive valuations of 16.6 times given the tailwind of policy actions. We expect the government to capitalise on an approaching 11-month election-free window to move ahead decisively. We expect enactment of insurance amendment Bill, tabling of the constitutional amendment Bill for GST (goods and services tax), amendments to land and labour Bills, long-pending critical reforms in the banking sector, and coal sector reforms over next 12 months, beginning with the winter session of Parliament, Abhay Laijawala, head of India research, Deutsche, wrote.
Analysts say emerging markets are the favoured bets as countries from India to Mexico have outlined commitments to economic improvement, with Europe at risk of deflation and US investors facing the end of quantitative easing. The sense is that emerging markets have fewer economic headwinds right now than developed countries, Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott. People have gone long emerging-market equities. Whats happening in Brazil is idiosyncratic and not indicative of all emerging markets, he added.
Housing Development Finance Corporation, the country's mortgage lender, rallied 4.1% on the BSE to more than a two-month high. Larsen & Toubro, the biggest engineering company, rose the most in six weeks with 3.6% gains. Maruti Suzuki India rose to a record as a weaker yen improved the outlook on the carmakers profit margin. The market breadth was strong with 29 out of 30 Sensex companies ending in the green. Overall, 1,775 stocks ended positive compared with 1,223 stocks that ended weak. Eleven out of 12 sectoral indices ended positive lead by Capital Goods index (2.66%), Oil & Gas (2.19%), BSE Power (1.94%) and Bank Nifty (1.7%).