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Indian markets on Friday soared about two per cent, the most since May 12, when exit polls showed the National Democratic Alliance would come to power at the Centre after the Lok Sabha elections. The gains followed the Bank of Japan (BoJ) announcing a huge stimulus programme, triggering a rally in global stocks.
In an unexpected move, the Japanese central bank raised its annual bond buying target to 80 trillion yen ($725 billion) from 60-70 trillion yen. Japan also increased the equity holding limit of foreign shares for its pension funds from 12 per cent to 25 per cent of the portfolio.
Japan’s benchmark index, the Nikkei, soared five per cent, while the yen fell to a seven-year low against the dollar. Most Asian markets ended with gains exceeding one per cent, while the European markets opened on a strong note.
Gaining for a fourth straight day, the benchmark Sensex closed at 27,865.83, up 519.5 points, or 1.9 per cent. The National Stock Exchange Nifty closed at 8,322.2, up 1.87 per cent, or 153 points. Both the indices scaled new record highs for a second straight day. The rupee strengthened against the dollar, while international gold prices dropped about two per cent on Friday.
“Bulls have once again taken charge. The larger-than-expected quantitative easing programme announced by Japan has boosted sentiment,” said U R Bhat, managing director, Dalton Capital.
The fresh stimulus package by the Japanese central bank came on a day when the six-year bond buying programme in the US came to an end. Investors hoped the BoJ’s action would make good any shortfall the end of the US’ quantitative easing programme is likely to create.
“This is a short burst of euphoria. The BoJ’s action acknowledges the global economy continues to remain weak. Next, the central bank for Europe will announce a stimulus,” said Saurabh Mukherjea, chief executive (institutional equities), Ambit Capital.
On Friday, foreign institutional investors (FIIs) pumped in Rs 1,754 crore into Indian stocks, taking their two-day investment tally to more than Rs 3,000 crore.
Indian markets have rebounded a sharp seven per cent from their monthly low in mid-October. The reversal has come on the back of the government announcing reform initiatives, as well as improving global investor sentiment.
Deutsche Bank on Friday raised its Sensex target for March 2015 to 29,000 “on intensifying policy action”. Abhay Laijawala, managing director and head of research at Deutsche Equities India said aggressive reform-oriented policies would emerge as a core catalyst for Indian markets.
After a period of intense volatility, during which FIIs had pulled out about $1 billion from Indian markets (between September 16 and October 17), foreign investors have once again turned aggressive buyers, pumping in Rs 5,500 crore in the past nine trading sessions. This month, mutual funds have been consistent buyers, investing about Rs 5,000 crore in stocks.
Experts said the stimulus packages announced by central banks had a neutral impact on India. “Stimulus packages are neutral for India. On the one hand, they help equities but on the other, they also put upward pressure on commodity prices. India’s fortunes are more linked to its fundamental story. And, India is on the path of becoming a healthy and robust economy. We have bottomed up and are moving upward,” said Mukherjea.
Analysts said capital flows into emerging markets on account of the stimulus package in Japan wouldn’t be as strong as due to the bond buying in the US.
“While the stimulus by Japan can provide a counter balance to some extent, it cannot be as strong as the US stimulus. Money from the US stimulus flows into all countries, including emerging markets. Japan’s economy isn’t that international yet,” said Bhat.
