Street-smart moves bring cheer

Written by fe Bureau | Mumbai | Updated: Oct 21 2014, 08:54am hrs
Oil & gas sector reforms, followed by the results of two assembly elections in which the BJP emerged victorious by huge margins, pushed equities to a one-week high and turned foreign portfolio investors (FPIs) net buyers after five continuous sessions of selling.

Sensex rose 1.23% or 321.32 points to end at 26,429.85. The Nifty gained 1.28% or 99.70 points to settle at 7,879.40 after the government on Saturday raised domestic natural gas price to $5.61 per million metric British thermal units (mmBtu) from $4.2 barrels after the model code of conduct came to an end. The price will be revised on a half-yearly basis. The government had also cut diesel price by Rs 3 and completely lifted diesel price control.

On Sunday, the electoral victory of the BJP in Haryana and Maharashtra Assembly elections is likely to give the Centre enough power to push through the reforms.

Overseas funds, who have been favouring Modi and the NDA-government for their pro-reforms and pro-growth agenda, purchased close to $170 million of shares in the cash segment on Monday, showed provisional data from stock exchanges. FPIs had sold more than $710 million in the previous five sessions the longest selling streak since August-end 2013, Bloomberg data showed.

Analysts said the combination of policy announcements and Assembly election results coupled with resumption of global risk appetite on the back of a change in the markets perception of the timeline for the US Federal Reserve policy normalisation are likely to lead India to outperform its EM peers.

Of the three announcements, the decision on diesel deregulation and implementation of direct benefit transfer are positive. Diesel deregulation will be perceived by the market as Modi administrations first big-bang reform assuaging investor concerns that the government was moving on its political goodwill into strong economic intent, said Abhay Laijawala, MD and head of India research, Deutsche Equities (India).

Market breadth was strong and broader markets saw strong buying that resulted in 0.5-1.5% gains. Twenty five out of 30 Sensex companies ended in the green. Overall, 1,637 stocks advanced against 1,197 stocks that ended weak. Eleven out of 12 sectoral indices ended in the green.

The markets were looking at the outcome of the Maharashtra election from the point of view whether the BJP will be able to send higher MPs to Rajya Sabha in the election in 2016. The answer is an emphatic yes. The government will be on the front foot now and will be willing to take the reforms forward, said Aseem Dhru, MD, HDFC Securities. Dhru also highlighted weak technicals that currently weigh on the markets, but said the trends could turn positive given the huge shift in the fundamentals.

Shares of capital goods, automobiles, and oil & gas companies were in demand with each of the three indices ending with 2-2.5% gains.

India's largest state-owned oil explorer, Oil & Natural

Gas Corp. (ONGC) and state-owned oil petroleum refinery Hindustan Petroleum (HPCL) each rose more than 5% after the government's announcement for the sector during the weekend. India's largest lender, State Bank of India (SBI) advanced nearly 3% to a four-week high.

Tata Motors gained nearly 4%. The shares of Reliance Industries (RIL) fell 0.5% as the company will not even get the incremental price until it proves that the cut in production in KG basin was not wilful.

A section of the markets said the gas price was short of market expectations and will not enthuse the producers, especially off-shore, deep-sea exploration given the risks and huge capex requirements.

The Sensex is valued at 15.1 times projected 12-month earnings, compared with the MSCI EM Indexs multiple of 10.7.