Sensex snaps four-week losing streak; rupee reverses fortune; gold gains.
Renewed optimism among global investors helped Indian stocks and the rupee to ride high this week after a four-week losing streak. The market also took heart from the reform intent showed by the central government in allowing foreign investments in sectors like retail and aviation. In the process, the political shadowboxing over FDI and the poor economic growth data were ignored.
The BSE Sensex added 363.38 points or 2.2 per cent at 16,846 on Friday, taking the weekly gains to 1,151.40 points, or 7.34 per cent, after global central banks showcased a coordinated effort and some determination to defeat the European sovereign crisis.
All Sensex stocks were in the green, gaining between 1.7 per cent (Hero Motor) and 19 per cent (Hindalco). The BSE Mid-cap and BSE Small-cap indices, however, underperformed the benchmark, gaining 2.69 per cent and 2.32 per cent, respectively.
Investors shifted focus from the empty half to the full half of the glass over the weekend as uncertainties became opportunities, stocks looked cheaper instead of risky and the cheap rupee became an icing on cheap stocks, making these look cheaper.
Even a weak local GDP data was seen as a pre-cursor to pausing of rate hikes by the central bank. Foreign institutional investors (FIIs), who had sold Rs 5,151 crore last week, were net buyers on the past three sessions. Including provisional figures for Friday, FIIs have bought stocks worth Rs 1,239 crore, net of selling.
Morgan Stanley analysts said they see a 16 per cent upside to the BSE Sensex in 2012. “We expect the market to make steady upward progress in 2012, marked by volatility. We think investors will be best placed to choose stocks, rather than pursue sector themes. We prefer mid-cap stocks over large-cap names,” Morgan analysts said in an outlook for 2012.
According to them, inflation data is already moderating, setting the stage for monetary easing. “The bad news on policy has stopped, although the volatility emanating from a weak developed world could keep pegging back Indian equities.”
Not all are, however, convinced about the rally sustaining. “There is temporary relief as the euro zone issues are getting sorted. Initial impressions are good. But we need to see how far this solution is effective. Locally, also, the government’s move to allow FDI in retail shows that reforms are back on the agenda. These two are, as of now, resulting in confidence among investors,” said Deepak Jasani, head of retail research, HDFC Securities.
“Bear market rallies are usually sharp. One needs to be careful. Abundant liquidity, accompanied with fall in interest rates and bringing inflation under control, will be key for the momentum to sustain,” Jasani said.
RUPEE GAINS
The return of portfolio investors has also helped reverse the fortunes of the rupee, which posted weekly gains for the first time in a month. On Friday, the rupee closed at 51.20 against the dollar, higher by 26 paise compared to the previous close. The Indian currency advanced by two per cent against the greenback this week. The increased limits on Indian corporate and government debt instruments were also auctioned this week, which supported rupee gains.
The rupee had depreciated by 1.7 per cent when it touched all-time lows of 52.73 last month, after which the Reserve Bank of India announced a slew of measures to attract foreign currency flows. “The central bank’s decision to ease rules on overseas borrowings by firms and to raise the ceiling on interest rates for deposits by non-resident Indians has improved view on dollar supply,” said India Forex Advisors.
This appreciation could, however, be limited as economists expect pressure on the rupee to persist till financial year-end. Economists at Deutsche Bank expect rupee-dollar pair to be at 51.5 levels by the end of March 2012.
GOLD GLITTERS
The rupee surge has rubbed on the precious metals too, as gold gained 4 per cent during the week. It hit a new peak on Friday by rising Rs 50 to Rs 29,490 per 10 grams on sustained buying by stockists to meet the ongoing marriage season demand amid a firming global trend. The precious metal has surpassed its previous record of Rs 29,440 per 10 grams set on November 30. The week’s rally that has come after four weeks of losses has already turned some analysts bullish.
