Nifty closes above 5000 on better-than-expected Q2 GDP data

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Positive Asian cues and assurance to investors about India's limited exposure to Dubai backed the Nifty to close above the psychological 5,000 mark. Better-than-expected Q2 GDP data was another boost to the markets, which pushed the Sensex above the 17,000 level during the day.

Asian markets closed strong in trade today, which helped the markets since early trade. Shanghai and Hang Seng jumped 3.2% each. Nikkei was up 2.91% and Kopsi up 2%. Taiwan Weighted and Jakarta gained 0.9-1.2% while Straits Times fell 1.09%.

Investors believed Dubai is an isolated event and said exposure of Indian companies to Dubai was limited. Abu Dhabi will help Dubai on case to case basis. The markets were crashed on Friday when Emirate said two of its flagship firms Dubai World & Nakheel planned to delay repayment of billions of dollars in debt.

Abu Dhabi officials say, "We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts."

Major booster for the day was Q2 GDP (gross domestic product) numbers. India's GDP growth in the second quarter of this fiscal has came in above economists' expectations. GDP grew 7.9% from a year earlier after rising 6.1% in the previous quarter. The government's stimulus measures seemed to have a direct impact on manufacturing, mining and services, which posted better-than-expected numbers.

Farm sector growth came in at 0.9% versus 2.7% YoY. Manufacturing grew 9.2% as against 5.1% YoY. The mining space posted the highest growth at 9.5% as compared to 3.7% YoY, while construction saw degrowth at 6.5% versus 9.6% YoY.

Experts are bullish on the full-year target. Keki Mistry, MD, HDFC Bank, and MD Mallya, CMD, Bank of Baroda, see full year GDP at over 6.5%. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, too says the government's full-year target of 6.5% is likely to be upped. Even Finance Minister Pranab Mukherjee says it is possible to achieve 7% growth in FY10. "The stimulus package has paid dividends. We are hopeful of a higher GDP growth than what was anticipated earlier."

Rajeev Malik of Macquarie Capital Securities expects 8% GDP growth in FY11. Godrej is more optimistic. He expects it to cross the 9% mark.

However, there was some cautious tone about the third quarter GDIP. Subir Gokaran, Deputy Governor, Reserve Bank, says growth in the October-December quarter may decline due to the recent drought. "One needs to watch out for negative farm growth in Q3." He stated that private consumption needs to pick up for sustained growth.

Index	Closing Value	Chg (%)
METAL	16,292.03	3.66
TECk	3,026.93	2.55
IT	4,757.27	2.1
SMALLCAP	7,522.98	2.08
MIDCAP	6,415.47	1.63
OIL&GAS	10,282.75	1.6
CAP GOODs	13,321.16	1.55
REALTY	3,660.45	1.28
BANKEX	10,042.46	1.23
POWER	2,979.44	1.05
AUTO	7,016.66	1.04
PHARMA	4,767.41	0.87
FMCG	2,872.10	0.73

All the sectoral indices ended in the green. But selling in select rate sensitives like Hero Honda, Maruti, PNB, SBI and Unitech wiped out some gains from higher levels, might be because of likely rate hike in future. Finance Ministry sources said robust growth strengthened rate hike possibility. Power Grid and Sun Pharma were the other losers.

Atsi Sheth of Macro-Sutra sees interest rates trending higher. "They are likely to happen by early next year." She feels a rate hike would not kill the recovery process as long as they are not too severe. Rajeev Malik of Macquarie Capital Securities says he would be surprised if policy makers are aggressive.

Weak European cues also weighed on the markets a bit during close; FTSE, DAX and CAC were down over 1% each while the US index futures were flat, at the time of writing this report.

The 30-share BSE Sensex closed at 16,926.22, up 294.21 points or 1.77% and the 50-share NSE Nifty gained 90.95 points or 1.84%, to settle at 5032.70. The benchmark indices lost 100.7 points and 33.65 points from day's high of 17,026.91 and 5066.35, respectively.

Top gainers - Suzlon Energy, Tata Steel, Bharti Airtel, Jaiprakash Associates and Tata Motors gained 5.4-6.4%. Hindalco was up 4%.

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