)
The country’s benchmark indices posted their biggest single-day gain in more than a week, while the rupee appreciated against the dollar due to strong buying by investors in anticipation the government would accelerate the process of reforms.
The 30-share BSE Sensex closed at 26,429.85, up 321.32 points, or 1.23 per cent, while the broad-based National Stock Exchange Nifty added 99.7 points, or 1.28 per cent, at 7,879.4. Both the indices gained the most since October 9. The rupee appreciated eight paise to close at 61.36 against the dollar.
On Saturday, the government had done away with state controls on diesel prices. It had also increased prices of natural gas. The moves will ease the Centre’s subsidy burden and help narrow the country’s fiscal deficit.
On Tuesday, shares of Oil & Natural Gas Corporation (ONGC), which had to absorb part of the subsidy burden, gained five per cent, adding about Rs 18,000 crore to the company’s market capitalisation. Other state-owned oil marketing companies, including Indian Oil Ltd, Hindustan Petroleum Corporation and Bharat Petroleum Corporation, rose four-seven per cent.
“Diesel deregulation will be perceived by the market as the Modi administration’s first big-bang reform, assuaging investor concern that the government is moving slowly on translating its political goodwill into strong economic intent. We also see the market building in expectations of more reform, particularly the long-awaited insurance amendment Bill, in the winter session of Parliament,” Abhay Laijawala, managing director and head of research at Deutsche Equities India, said in a note.
The Bharatiya Janata Party’s victory in the Maharashtra and Haryana Assembly elections has increased expectations on the reforms front. Market players expect the Centre to make more announcements pertaining to reforms in the near future.
“The removal of price control on diesel has shown the government is committed to taking certain reforms. It is likely it might announce reforms in the mining and coal sectors next. The Centre will accelerate the reform process,” said Deven Choksey, managing director of KR Choksey Securities.
In intra-day trade on Monday, the Sensex rallied about 400 points. However, a weak opening in European markets saw Indian stocks lose some of the gains.
Reversing their recent selling run, foreign investors net-purchased shares worth about Rs 1,040 crore on Monday.
The recent turbulence in global financial markets has seen foreign institutional investors pull out about $1 billion from the Indian market in the past month. With only a few trading sessions before Diwali, market players are hoping the market will move close to its all-time highs. Now, the Sensex is less than 900 points below its all-time closing high of 27,319, recorded on September 8.
"There is no doubt the Indian market will scale new highs soon. The market has to consolidate; that is what it has done in the past month. On a fundamental basis, there is no reason why the Indian market shouldn't attract investors," said Choksey.
The volatility index, or VIX, an indicator of market risk, fell 13 per cent on Monday, the most in five months. A low reading on the VIX points to improved investor sentiment. The Indian market, which has rallied 26 per cent this year, is trading at 17 times its one year-forward earnings estimates, above its long-term average.
"India has a good mix of an improving top-down macroeconomic situation and excellent bottom-up fundamentals. The recent pick-up in economic reforms will keep valuations and investor interest at elevated levels," Sanjeev Prasad, senior executive director and co-head, Kotak Institutional Equities, said in a note.
