With the 50-stock S&P CNX Nifty closing above 5,000 for the first time since December 7, Indian markets are off to the best start in more than a decade. That has been led by improved risk appetite globally and falling food prices raising expectations the Reserve Bank of India (RBI) would reverse its monetary policy stance.
The benchmark Sensex has gained 1,188 points, or 7.7 per cent, the most since it rose 9.44 per cent in the first 13 trading sessions in 2000, according to data compiled by the Business Standard Research Bureau. The rally has been led by strong capital inflows by foreign institutional investors (FIIs) and anticipation of the macroeconomic situation improving on expected monetary easing.
Having been the worst performing major global market last year, the Indian market has been the second-best performer after Brazil so far in 2012. Ditto with the rupee, which was among the worst-performing currencies last year but has gained more than five per cent this year.
Foreign investors have pumped in close to $1.2 billion in the equity markets so far, thereby negating last year’s selling of about $500 million. According to dealers, big FIIs have been investing heavily in the Indian market.
Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, said, “We have had the worst closing last year, so we deserve to get the best opening. This has been a very good start to the year, although there weren't much expectations.”
Added Andrew Holland, CEO-Equities, Ambit Capital, “The rally started with a lot of short-covering, but now we are seeing some genuine buying. The European Central Bank has been pumping liquidity in the market, which is finding its away to all the markets.”
Spiralling inflation, high interest rates, slower growth, policy inaction and a fragile global situation saw the Indian market lose a quarter of its value in 2011.
“Last year's performance was due to high inflation and a tight monetary policy. 2012 will be marked by falling inflation and rate cuts, a perfect environment for a good rally,” said Agrawal adding, “We lost 5,000 points last year, this year I hope we gain 5,000 points.”
“We'll get a sharp rally once we see the RBI policy turn. We could get a series of rate cuts as RBI starts factoring in growth concerns rather than inflation concerns,” said Jyotivardhan Jaipuria, head of research, DSP Merrill Lynch India.
