The party continues on Dalal Street. The Bombay Stock Exchange (BSE) benchmark Sensex rallied past the 18,000 mark on Wednesday, led by strong inflows from overseas investors, amid a rally in global stock markets after China pledged to help resolve the European crisis.
Gaining the most in over a month, the Sensex rose 353.84 points, or 1.98 per cent, to 18,202.41, its highest close since July 27, 2011. At the National Stock Exchange (NSE), the 50-stock Nifty index gained 115.9 points, or 2.14 per cent, to 5,531.95.
Indian shares got a boost from heavy foreign institutional investor (FII) buying. FIIs poured in Rs 1,839 crore on Wednesday, according to provisional data from the BSE. With this, the year-to-date tally of FII investment in Indian stocks neared the $5-billion mark. Meanwhile, domestic institutional investors were sellers to the tune of Rs 313.47 crore on Wednesday.
According to the latest Bank of America-Merrill Lynch fund manager survey, risk appetite is back among global investors and they have turned positive towards emerging markets like India. The current rally has seen India's underweight position come down drastically from 61 per cent in January to 33 per cent this month, according to the survey.
“As risk appetite climbs, flows into emerging market funds have turned positive in January and the trend should continue,” said Arjuna Mahendran, the Singapore-based head of investment strategy for Asia at HSBC Private Bank. “Investors expect a decoupling of emerging markets from Europe, similar to that experienced in the early 1990s when Japan slipped in deep recession and global capital flows were routed away from Japan and towards emerging markets.”
From being the second worst-performing market in 2011, India has emerged as the best-performing equity market in 2012. The Nifty has risen 19.63 per cent so far in 2012, while the Sensex has gained about 18 per cent.
Market experts believe for the rally to sustain, the government will have to improve its fiscal situation. “The ongoing rally could sustain until the Budget,” said Manish Sonthalia, fund manager at Motilal Oswal AMC. “Right now, the market is giving the benefit of the doubt to the government that it will announce fiscal consolidation. If it fails to do so, the market might crash. If there is a clear road map, it could even rally higher from the current levels.”
The market breadth was positive on the BSE, with nearly two stocks advancing for every declining stock. All the indices, except for oil and gas, closed with gains. The drop in the headline inflation to a two-year low has improved sentiment towards stocks in rate-sensitive sectors. Realty, capital goods, power and banking gained more than three per cent each. Among the biggest gainers on the Sensex, Tata Motors added close to seven per cent while Tata Power and DLF gained six per cent each. Index heavyweight Reliance Industries, which fell about 1.5 per cent, was the worst-performing stock.
China's assurance to participate in the European bailout efforts improved sentiment across global equity markets. Most Asian market closed with gains, while the European and US futures were trading positive till the close of Indian markets.
