Sensex surges to record high; rupee sees biggest gain in 1-1/2 months

A trader works at a brokerage firm in Mumbai. The Sensex closed up 1.27% to 25,841.21 points yesterday.

Reuters/Mumbai

 Indian shares surged more than 1% to hit record highs yesterday after Finance Minister Arun Jaitley’s warning against “mindless populism” raised hopes the government would unveil a fiscally prudent budget next week.

Jaitley on Tuesday also said a high fiscal deficit and inflation are major challenges for India, further soothing market sentiment ahead of the budget to be unveiled on July 10.

Among the top gainers were sectors expected to receive support in the budget such as power and infrastructure, including Larsen and Toubro and Bharat Heavy Electricals.

Overseas investors who pumped in about $10bn so far in Indian shares this year, bought shares worth $142.8mn for the third straight day on Tuesday, exchange and regulatory data showed.

“It’s a pre-budget rally and the government is giving enough signals on how it is going to deal with the economy.

Market is taking cues from there and expectations are very high. Though we are positive, we advise clients to be cautious and selective as selling pressure can emerge on any negative news,” said Suresh Parmar, head, institutional equities, at KJMC Capital Markets.

The benchmark BSE index closed up 1.27% at 25,841.21 points. Earlier in the day, it surged 1.37% to hit a record high of 25,864.53 points, surpassing its previous life high of 25,735.87 hit on June 11.

The broader NSE index gained 1.18% to close at 7,725.15 points, having hit a fresh record high of 7,732.40 points earlier in the session, breaching its previous peak of 7,700.05, also hit on June 11.

Shares in the power and infrastructure sectors, widely expected to be among the biggest focus areas for the new government, rallied. NTPC closed 3.33% higher, Tata Power Co ended up 0.9% and Larsen and Toubro gained 1.6%.

The sub-index of state-run companies also gained 1.22% on hopes of reforms and divestment.

Container Corp of India gained 3.3% while Rural Electrification Corp ended 3.8% higher.

Among blue-chips, Reliance Industries gained 1.02% and Sun Pharmaceutical Industries ended 2.1% higher.

Meanwhile the rupee posted yesterday its biggest single-day gain since mid-May and rose to its highest level in more than two weeks on the back of heavy dollar sales by custodian banks along with some corporate dollar inflows. Aiding sentiment was a record run by Indian shares after Finance Minister Arun Jaitley’s warning against “mindless populism” raised hopes the government would unveil a fiscally prudent budget next week.

Traders said the central bank was spotted buying dollars sporadically after the unit crossed 59.70 levels, but strong inflows helped the rupee continue to gain nonetheless.

The Reserve Bank of India has tended to intervene when the rupee strengthens above 60 to the dollar.

“Now that the psychological level of 60 has been breached and with a close of below 59.70, there could be potential further gains for the rupee. But RBI can step in to buy at any point,” said Paresh Nayar, head of foreign exchange and fixed income trading at First Rand Bank.

“The budget is going to be the most keenly watched budget after many years. The forex market will be impacted based on the outlook for inflows in various sectors based on specific measures taken.”

The partially convertible rupee closed at 59.6875/6975 per dollar compared with 60.07/08 on Tuesday. The unit rose to 59.62, its strongest since June 13, while the day’s low was 60.07.

The movement in global crude, given the impact on inflation and the current account deficit, will be monitored. India imports nearly two-thirds of its oil needs.

Oil fell towards $111 a barrel yesterday, its lowest in almost three weeks, on a possible substantial recovery in Libyan exports after rebels said they would reopen two oil terminals.

In the offshore non-deliverable forwards, the one-month contract was at 59.90, while the three-month was at 60.48.