Indices soar, as FIIs net buy $1 bn in shares over 2 days

Feel-good numbers buoy markets, even though some worries surface.

Indian equity markets continued to sizzle on Friday, with benchmark indices inching closer to all-time highs. While legal clarity on the Ayodhya issue gave foreign institutional investors (FIIs) one more reason to bet on Indian shares, the sentiment received added fillip when Goldman Sachs raised its India growth forecast and auto majors reported record sales numbers for September, signalling that economic growth is on the rise.

The 30-share BSE Sensex opened higher at 20,094 and traded in positive territory for the rest of the session. It ended the day at 20,445, up nearly 2 per cent, or 375.92 points. This is the highest ever close for the Sensex since January 14, 2008. The broader NSE Nifty, meanwhile, settled at 6,143.40, up 113.45 points, or 1.88 per cent.

According to the provisional numbers, FIIs have net bought Indian shares worth nearly $1 billion in the last two trading sessions. The current calendar year has already seen record FII inflows in excess of $19 billion. According to EPFR Global, India equity funds are enjoying strong inflows on account of “renewed interest in exposure to emerging Asia” that “centred largely on China and India”.

Andrew Holland, CEO (equities), Ambit Capital, feels that the global scenario is “conducive” to this kind of surge. “Although, our Sensex target was 20,000, we would not be surprised if it passes 21,000, as there is momentum. The only risk seems to be a sharp rise in global crude oil prices, which may move towards $100 in the near future,” said Holland.

Earlier in the day, financial major Goldman Sachs raised its forecast for India's gross domestic product (GDP) and interest rates. “We are raising our FY11 GDP growth forecast to 8.5 per cent from 8.2 per cent previously on the back of a better-than-expected monsoon,” said Tushar Poddar of Goldman Sachs, in a note released on Friday.

Incidentally, the higher growth forecast of Goldman Sachs comes close on the heels of the Asian Development Bank (ADB), which two days ago raised the 2010 growth forecast for India to 8.5 per cent from 8.2 per cent estimated in April.

Meanwhile, manufacturing activity expanded for 18 straight months in September, although the pace decelerated from the previous month. The seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, fell to 55.1 in September from 57.2 in August. A figure above 50 indicates expansion.

"The forward-looking new orders-to-inventory ratio continued to decline... This suggests falling momentum in the manufacturing sector and lower output growth in the coming months," said Nomura India on Friday.

On one hand, while the pace in India decelerated in September, China saw manufacturing growth expand at the fastest pace in four months in September, adding to signs that economic growth is stabilising. According to Bloomberg, the Purchasing Managers’ Iindex rose to 53.8 from 51.7 in August. Meanwhile, Bank of America-Merrill Lynch said Chinese officials may accelerate gains by the yuan, as domestic demand strengthens and the US maintains pressure for a stronger currency.

The buoyant mood in the Indian market was further corroborated by strong market breadth, with nearly 2,000 stocks gaining ground on Friday, against 984 losers. Auto stocks hogged the limelight with sector majors, including Maruti Suzuki, Bajaj Auto, Tata Motors, M&M and TVS Motors all recording robust sales numbers. While shares of Bajaj Auto gained 4.90 per cent, M&M and Maruti were up by nearly 3 per cent.

Among the Sensex constituents, Bhel, DLF, Hindalco Industries, ICICI Bank, Jindal Steel, L&T, TCS, Wipro, Tata Steel and Reliance Industries all gained ground.