Before Swearing-in, D-St, Swear by Modi
Small- and mid-caps lead rally and Sensex, Nifty scale new peaks; Re at 11-month high
Small- and mid-cap shares led the buying frenzy on Dalal Street on Monday as rising hopes that the new government would repair the economy prompted investors to lap up stocks that were available cheap. The Bombay Stock Exchange’s small- and mid-cap indices posted their biggest single-day gains in five years, stealing the limelight from benchmark indices which closed at all-time highs. The rupee rose to an 11-month high against the dollar as foreign investors pumped money into the local market. As many as 532 of 2,859 stocks traded on the BSE were frozen at the maximum tradable limit of the day. Buy orders in excess of 50,000 were pending in many stocks in the absence of sellers. Brokers and analysts expect the rush to purchase these stocks to continue for a while, at least until their valuations catch up with those of large-caps. “Monday’s situation is not sur- prising. Either you buy cheap or wait for the good news and buy stocks expensive,” said Ramesh Damani, a veteran BSE broker. “Stocks in small, mid-cap counters moving from circuit to circuit may continue for some time.”
BSE’s small-cap index soared 5.8% and mid-cap gauge rose 4.2%, their highest daily gain since May 19, 2009. Jaiprakash Power shot up 30% while KSK Energy, MMTC and Indiabulls Power were among those hitting the 20% circuit. Many of these stocks were in power, infrastructure and construction sectors, which investors feel would benefit under the incoming Modi government. “Investors were wary of buying many of these ahead of poll results when they were available dirt cheap,” said Damani. The Sensex gained 1%, or 241 points, to close at 24,363.
On the National Stock Exchange, the CNX Nifty rose 0.84%, or 60.55 points, to 7,263. Benchmark indices were weighed by selling in technology and pharma stocks. The BSE IT index, which fell 5%, touched a seven-month low on Monday as the rupee’s gain will hurt technology firms that get most of their revenue from exports. On year-to-date, mid- and small-cap indices have gained 21% and 27%, respectively, outperforming the Sensex that rose 15% this year so far. Damani said the poll results would bring back retail investors with a bang and even revive the primary market for equities. Retail investor participation in the domestic market was at a decade-low as savings moved to gold and real estate. “We strongly believe that the election results will mark the revival of retail investor interest in equities,” said Abhay Laijawala, managing director and head of research at Deutsche Equities India. “Retail investors are expected to shift their investments from gold and other such non-productive assets to equities.” The rupee on Monday closed at 58.60 to the dollar, up 18 paise from Friday after hitting an intra-day high of 58.38. Foreign institutional investors bought stocks worth Rs 1,350 crore during the day, initial exchange data showed. Some nationalised banks were seen buying dollars below the 58.50 level, which some dealers termed as suspected central bank intervention to stem the rupee’s sharp appreciation. Rising foreign exchange reserves at the Reserve Bank of India indicate its dollar-buying, dealers said. Central bank data last Friday showed the reserves at $313.8 billion, compared with about $311 billion a week earlier. The local currency’s gain is not good news for exporters, as they get fewer rupees for the dollar they bring in. “Exporters are facing a doublewhammy effect, that is losing in spot as well as the forward premium,” said Niki Mistry, senior research analyst at India Forex Advisors. “Exporters are going for short-term covers to safeguard their benchmark costing. We are suggesting exporters to initiate a blend of shortterm and long-term forward contacts with appropriate hedge ratio.” Bond prices moved lower, bucking the trend of market rallies on political optimism, with the yield on the 10-year benchmark paper closing at 8.87%, up four basis points from Friday. Bond price and yield move in opposite directions. A troika of reasons, including the fear of higher fiscal deficit numbers in the next budget, excess bond supplies and profit-taking hurt bond prices, dealers said.
With the rupee on the rise, the BSE IT index fell 5% and touched a seven-month low