Sensex crosses 19K mark on reform hopes
The SENSEX of the Bombay Stock Exchange gained one percent to go above 19,000 points on Thursday for the first time since July 8, 2011 on hopes for additional fiscal and economic reforms.
The Nifty also advanced by one percent.
New Delhi-based market analyst Akash Jindal said the base of the market growth is the reforms initiated by the government.
"The base is the reforms that the government has initiated, whether its escalation in diesel prices, whether FDI in retail, whether FDI in aviation or other reforms that is the base why market has grown. Now, what the market is saying that the government is in all moods to reform and the government is also in a mood to come out with further set of reforms, as some reforms are such which could be expected today also. So, markets are quite bullish as far as the government policy is concerned because we should not forget that five months ago the basic thing we used to discuss was policy paralysis. The government was not doing anything as far as policy is concerned. Now, the government is taking policy actions and the actions are being taken swiftly that has cheered the market," said Jindal.
The cabinet is set to approve bills that would raise the cap on foreign direct investment in insurance firms and open the pension sector to foreign investors.
The bills, which require parliamentary approval before becoming law, will likely be taken up in the forthcoming parliamentary session.
Jindal added that the initiation of the reforms and improvement in the economic situation of Europe, the dollar price has become less as compared to Indian rupee.
"Because of government actions and because of international situations improving a bit, dollar has weaken and rupee has strengthened that is again good for the market. Today, the international markets also have been positive. So, all taken together, the markets have reached the level of 19,000 and now I would make a further prediction of 20,000 around Diwali. Because the government is in all mood to continue with the reform process and international scene is also looking better. So, investors who have still not entered the market should not think that the market is too over-rated, there is still room for them to enter the market at these levels," added Jindal.
Their approval on Thursday will come weeks after Prime Minister Manmohan Singh unveiled measures aimed at shoring up government finances and attracting foreign investment to revive economic growth.
Foreign groups are not allowed to invest in the pension sector, while investment is capped at 26 percent in the insurance sector.
Financial sector reforms including pension and insurance have been pending for years for want of a political consensus.
Earlier this year, Singh had to put on hold a similar bill after failing to win over allies and opposition parties.
Domestic and foreign insurers, which have invested billions of dollars in India over the past decade, have been lobbying for years to raise the foreign direct investment limit.
The minister, who declined to be named, said the bills would raise the cap on FDI in insurance firms to 49 percent and permit 26 percent foreign investment in the pension sector.
Mumbai-based market analyst Ankit Ajmera said if the Reserve Bank of India Governor D. Subba Rao comes out with some rate cut-offs, at least 25-50 basis point, then it will boost the confidence of the investors and the sensex might cross even 20,000 points.
"Markets have been on a roll ever since the government ha started reforms. The, so called, reform paralysis that was there in the market and the government was not being able to do anything because of the opposition by some of the UPA allies, that was a hindrance to the market for crossing 19,000. But now that the government has taken theses steps and come out with a lot of reforms in FDI and by increasing diesel prices, it has given a signal to the investor community at large, including domestic as well as FII's (Foreign Institutional Investors) that yes the government is here to do something and we will definitely see some more reforms to come," said Ajmera.
Faced with a slowing economy, Singh has been trying to push ahead with stalled reforms to boost growth.
Last month, the government raised the price of heavily subsidized diesel and cut supplies of subsidized cooking gas despite strong political opposition, including from within the ruling coalition.
It also opened up the retail sector to global supermarket chains, allowed foreign airlines to buy stakes in local carriers and raised the bar on foreign investment in broadcasting.
Ajmera said that in order to evade incurring heavy loss due to global economic slowdown, small investors should keep booking profit.
"Valuations do come to play at some point of time and that is where the index or the markets may again start falling, so my suggestion to the investor community as large, especially a small investor is that gradually go on looking profit at these levels wherever they are making. Because this rally although is there but then the global pressure are continuing, the numbers of Europe are not impressive, US also is in a problem. So, even if India is reacting and reforms are coming, there is a possibility of some meltdown by the global peers and that can have a big toll on the markets," added Ajmera.
Financial companies with insurance units surge: Max India jumps 3.3 percent, hitting earlier its highest since December 2009, while Bajaj Finserve adds 2.5 percent having earlier hit a record high at 953.90 rupees.
Oil marketing companies gain after Brent futures fall: Hindustan Petroleum Corp rises 2.6 percent.
Blue chip lead gains: ICICI Bank rises 2.6 percent, Reliance Industries gains 1.1 percent.