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Upbeat stock market scores high |
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Indian stock market is inching closer to its past glory, riding high on the wave of better-than-expected growth of country’s gross domestic product; scaling new heights in the wake of re-election of Manmohan Singh-led UPA (United Progressive Alliance) government at the centre; and driving strength from its pronounced agenda of economic reform and disinvestments. As President of India, Pratibha Patil unleashed her government’s vision and roadmap for the next five years in the lower and upper houses of Indian Parliament on 4th June, 2009, the Sensex rallied past 15,000-level for the first time in the past nine months in a symbol of rising confidence and bolstered sentiments in the market as well as in economy.
Clear mandate in favour of UPA plays a pivotal role: The re-induction of the UPA government at the centre has been more fruitful for the market as compared to its first stint in 2004, when – owing to the absence of a clear mandate in General Election and subsequent dependence on Left parties to form the Government was seen as an obstacle to economic growth and liberalization. As a result the Government was welcomed by a 564 points fall in the Sensex on May 17, 2004 to close at 4505 from its previous level of 5069. In a sharp contrast, UPA victory, and Congress’s emergence as a stronger alliance leader this time was given a clear thumbs up by the market as Sensex and Nifty broke all records to hit the upper circuit breaker, with stock market surging by 17 per cent in a single day. The bulls run continued as the index moved from 12,000 levels to 15,000 levels within a span of just 14 trade sessions.
With the Government charting out its plan to pump in massive resources in a plethora of core sectors, including, telecom, roads, ports, health, education and rural development, in addition to initiating firm disinvestment policy, market sentiment continues to remain strong over the last three weeks. Many stocks in the BSE-500 category, belonging to the sectors like realty, infrastructure and finance, have risen beyond 100 per cent in the last 15 trading sessions, as the hope of financial sector reforms and increased government spending in infrastructure prevails over the investors’ mindset. According to Alex Mathew, Head of Research at Geojit BNP Paribas Financial, “The agenda of the new UPA Government to revive the economy by allowing increased investment into infrastructure sector and other stressed sectors pepped up the market,”.
Disinvestment hope peps up market: After experiencing a subdued interest between 2003 and 2007, the listed PSUs were ushered in with renewed focus after the UPA win in General Election 2009. The BSE PSU index climbed up 39.5 per cent since the announcement of the verdict, surpassing the 24 per cent rise in BSE-500 and 20 per cent jump in Sensex level during the same period of time. As UPA Government is expected to push through sales of centre’s stake in listed PSUs, the stocks of these government undertakings saw a substantial rise over the last couple of weeks. Stocks of the companies, which have 92-99 per cent government holdings, including MMTC, NMDC and RCF registered strong gains, with returns of 45 per cent to 104 per cent.
The market welcomes the proposal of disinvestment because it acts a booster for the economy, generating funds to improve the fiscal deficit. At a time when soaring subsidy bills and government-sponsored stimulus measures have widened the fiscal deficit, with economic slowdown adversely affecting revenue receipt, disinvestment is definitely one viable method to reduce fiscal burden. The fiscal deficit for FY-09 at a staggering Rs 3,30,000 crore, is around 21 per cent of the total market capitalisation of the BSE PSU index. Market is expecting that proceeds from the disinvestment will come back into the Budget to partially fill in the fiscal deficit. In addition, IPOs from unlisted government undertakings could rejuvenate the IPO market, further leading to a strengthened stock market.
Eight of the sixteen PSUs/banks which used the IPO market to mobilize resources in the last half a decade, including Power Grid Corporation, REC, PFC, Indian Bank proved strong enough to outshine the BSE Sensex. The recent batch of PSU offers during 2007 and 2008 has been able to deliver reasonable returns for the investors, even amidst the financial meltdown and credit crunch. Even in the bull market, IPOs from the public sector enterprises, unlike their corporate counterparts, were priced modestly, thus leaving money for the investors.
In some cases, discounts to prevailing market prices were offered to retail investors. As a combined effect of all these factors, most of the PSU stocks, divested even during the bull run in 2007 or early 2008 delivered positive premium.
FIIs propel surge in Indian stocks: As the emergence of a stable government at the centre has boosted market sentiment, the bull momentum created a few weeks ago continued to drive the markets to new height in every week. To a large extent, renewed interest of foreign institutional investors (FIIs) is responsible for the upward movement of Sensex. After drawing out a massive Rs 52,987 crore from the Indian stock markets in 2008, which saw the Bombay Stock Exchange benchmark Sensex plummeting 51 per cent, FIIs turned net buyers during the last week of March.
In the run-up of General Election, FIIs continued to put money in Indian stocks in the month of April, and invested over US$1 billion in domestic market, owing to the impressive results delivered by large enterprises-that beefed up confidence of foreign investors. Add to this, the re-election of reformist UPA government at the power, and one can see India back on FII radar with a big bang. Gokul Laroia, managing director of Morgan Stanley Asia said that "India funds a large portion of its growth through external resources. Investors are very positive on the country after big issues such as the election verdict exceeded expectations".
As per latest estimates, FIIs have invested around US$1 billion in Indian stocks in every week of May, as total inflow of FII fund to the country crossed US$4 billion so far in 2009. Global investors have brought in nearly to US$200 million in India-focused equity funds in the first week of June, while the overall Asia-dedicated funds witnessed the biggest inflows of as much as US$1.54 billion, a report says.
According to data compiled by international fund tracking firm, EPFR Global, India equity funds received an inflow of US$199 million in the first week of June, which is the highest amount seen in the last 55 weeks. As per statistics available with the market regulator Securities and Exchange Board of India (Sebi) till May-end, FIIs have bought shares worth Rs 1,96,021 crore in 2009, while they sold equities valued at Rs 1,75,547 crore. The net investment of FIIs in Indian stocks touched US$4.2 billion (around Rs 20,473 crore), with prime portion of inflows coming in the golden month of May. In addition to the India-specific factors which revived FIIs’ interest in the stock market, experts believe that the increased FII inflow in India is part of the overseas bullish investment strategy of institutional investors in many emerging markets after a lull period of over a year.
Future outlook: According to financial services major Morgan Stanley, the Indian stock market is likely to outshine its global peers and the benchmark Sensex could touch the 19,000-level by the end of this year.
"A global market sell-off remains a key risk to absolute performance in Indian equities though we think Indian equities will likely outperform," the Indian strategy report of Morgan Stanley said.
There is 40 per cent probability of a bull run in which case the BSE Sensex could hit the 19,000 mark by the end of 2009, the report confirmed, adding that there is only 10 per cent probability of a bear run in which case the Sensex could dip to 8,600 levels. As says Ridham Desai, Managing Director, Morgan Stanley Equity Research, that when the world is awash with liquidity, India is getting its share of it through FIIs, as sectors like auto, infrastructure, banks are expected to do well during the year. With improvement in consumer confidence index in India by 0.8 per cent in April and rise in employment confidence by 3.1 per cent, first time in last 10 months, India looks for a sustained rally in the markets in coming months.
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