Rajan fuels rally; Sensex surges 412 pts, Bankex up 9%
Experts are not convinced with today‘s rally as they feel that it is too early to say India has turned a corner. They advised investors to use every rally for profit booking because the real problems like current account deficit are not in control yet.
Dalal Street cheered Raghuram Rajan's 'big initial package' as the Sensex surged more than 400 points supported largely by banks. The market recouped all its Tuesday's losses in following two sessions on Syria tensions easing and on hopes of recovery in economy after RBI governor's aggressive stance.
The Sensex gained 412.21 points or 2.22 percent to close at 18979.76, and the Nifty was up 144.85 points or 2.66 percent at 5592.95 after hitting an intraday high 19117.52 and 5625.75, respectively.
The governor who took over Subbarao, on its first day (September 04), announced several measures to curb the rupee depreciation, modernise the Indian banking system and improve economic growth.
However, experts are not convinced with today's rally as they feel it is too early to say India has turned a corner. They advise investors to use every rally for profit booking because the real problems like current account deficit are not in control yet.
This rally is shortlived, believes Sangeeta Purushottam, founder and managing partner, Cogito Advisors.
Purushottam explains that the market will find it tough to move up "beyond 5700-5800 levels, because valuations are no longer compelling." She said the reform measures taken by the RBI and the government will take time to fructify. "One cannot define this market in a secular uptrend, there will be rallies and there will be corrective phases, so it is more like a base building phase that I see over the next year-and-half," she elaborated.
Meanwhile, Sanjeev Prasad, Senior Executive Director and Co-Head, Kotak Institutional Equities sees QE tapering and elections as two major uncertainties for Indian market as of now.
In the money market, the rupee gained around 150 paise intraday on positive sentiment after governor Rajan announced steps to attract NRI dollars as well help banks raise overseas capital.
Bank of America Merrill Lynch, in its report, welcomed Rajan's proposal to offer a swap at a concessional 3.5 percent to banks for FCNRB deposits of 3+ years on his very first day.
“This should add about USD 10 billion to forex reserves and rein in rupee expectations around current levels. This brings to fruition our standing call that the RBI would need to mobilise forex reserves by launching a NRI deposit scheme in which the rupee risk is borne by it (or the government),” BoAML report said.
The domestic currency closed at 66.01 per dollar, up 106 paise from previous close.
Big surge was seen in banking stocks today as the BSE Bankex rallied more than 9 percent after RBI announced measures which will ease liquidity.
RBI has raised overseas borrowing limit of banks from 50 to 100 percent of their tier 1 capital and swap it with RBI 1 percent below markets rates. It has also allowed banks to swap their FCNR deposits with the RBI at 2 percentage points below market rate.
The rally in Axis Bank was also because of Reserve Bank of India (RBI) withdrew curbs on foreign equity investment in the bank.
Among others, ITC, HDFC, Larsen & Toubro, ONGC, Coal India and BHEL jumped 4-8 percent whereas Sesa Goa shares lost over 4 percent.
Technology stocks remained under pressure throughout the session with the IT Index falling 3 percent on rupee appreciation. Top software services exporters TCS and Infosys were down more than 3 percent.