It was another lucky Friday for the markets. Key stock indices surged to 14-month highs and the rupee gained after the government slashed a tax on foreign borrowing by local firms and included mutual funds in the Rajiv Gandhi Equity Savings Scheme, giving a clear signal to investors about its commitment to more reforms.
Market participants were also enthused after Samajwadi Party supremo Mulayam Singh Yadav said his party would continue to provide outside support to the United Progressive Alliance (UPA), removing uncertainty about the government’s fate after its largest, ally the Trinamool Congress (TMC), withdrew support.
The government cut the withholding tax paid on interest on overseas borrowings by Indian companies to five per cent from the earlier 20 per cent, giving them easier access to cheaper funds.
| BETTER TIMES AHEAD Financial institutions see Rs rising to 52/$ by Dec | |
| Organisation | Rs /$ by end Dec |
| HDFC Bank | 52-52.5 |
| IndusInd Bank | 50.0 |
| FirstRand Bank | around 52.0 |
| HSBC | 52.0 |
| Kotak Mahindra Bank | 52-54.0 |
| Alpari Financial Services | 52-53.5 |
| GOVT FURTHERS ITS REFORMS DRIVE | |
| Rajiv Gandhi Equity Savings Scheme gets approval | |
| |
| Withholding tax on foreign borrowings lowered | |
| |
It also approved the Rajiv Gandhi Equity Savings Scheme (RGESS), announced in the Union Budget, which would give tax benefits to individual investors for putting up to Rs 50,000 in stocks. It is aimed at encouraging people to invest in financial instruments like stocks rather than gold, considered an unproductive asset. RGESS has been predominantly designed to encourage direct investment into equities. However, the government has also included investments routed through exchange-traded funds and mutual funds, following requests from various stakeholders.
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The National Stock Exchange (NSE)’s 50-stock Nifty added nearly 137 points, or 2.45 per cent, to close at 5,691.15.
The rupee traced its way back to an over-four-month high of 53.47 against a dollar. “Rupee appreciation is mainly reflecting the positive sentiment of investors towards the currency and the country. Any more reform measures would only add to the current mood,” said Hitendra Dave, managing director and head of global markets (India) at Hongkong and Shanghai Banking Corporation.
The lndian currency swayed from its intra-day high of 53.34 to a low of 54.21 against the greenback. The global dollar weakness also helped the rupee. The dollar index, as measured against six major currencies of the world, was at 79.21, compared with 79.41 a day ago.
FIIs, which stepped up their buying in the Indian market after last week’s bold reform measures, bought Rs 2,327-crore shares on Friday, provisional BSE data showed. In last five trading sessions, they have pumped in Rs 8,600 crore in Indian shares.
India was the best performing stock market in Asia on Friday, as confidence was growing among investors that the government would be able to push through more policy reforms to revive economic growth.
“The concern that TMC’s pullout would be a disaster is not there anymore, with SP pledging outside support to the government. It can now do more reforms,” said Andrew Holland, CEO (investment advisory) at Ambit Capital. “The market had already gained confidence because of what happened a week before. Now that the government hasn’t rolled back any of the reforms announced, the confidence has got a further boost.”
Yesterday, the government had formally implemented its last week’s decision to allow foreign direct investment in multi-brand retail and foreign airlines to invest in domestic aviation companies.
Ambit’s Holland sees the Nifty moving towards the 6,000-mark, if the government continues to push ahead difficult reforms, given that the liquidity is abundant globally.
“Earlier, there was lack of conviction the government would be able to push reforms. However, what it has done in the past few days has given confidence to the market, and foreign investors, it would be able to take some decisive steps,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. “So far, there wasn’t much participation from domestic institutions and retail investors. Now, some kind of buying will emerge from these players,” he added.
Power, capital goods, metal and banking stocks were the major gainers of on Friday’s rally, with indices representing these sectors surging over four per cent each on BSE.
Among the major gainers in the Sensex, the BHEL stock rose 6.89 per cent to Rs 231.80. Others like Sterlite Industries, Tata Steel, SBI, Tata Power and ICICI Bank also gained over four per cent each.