Bloomberg, Reuters / Mumbai
Indian equities climbed and key gauges rose to records, capping their best weekly gains in nearly seven months, as Prime Minister Narendra Modi cruised to his second successive victory.
The benchmark S&P BSE Sensex advanced 1.6% to 39,434.72 points at the close in Mumbai, taking its weekly gain to 4%, the most since November 2. The NSE Nifty 50 Index also rose by 1.6% to 11,844.10, a new all-time high closing.
A measure of price swings, the NSE Volatility Index, plunged another 15% after a 30% slump on Thursday.
With the election outcome settled, investors will be looking to see how the government tackles slowing economic growth. A survey of economists predicts a report next week will show the slowest pace of growth since 2017 in the first three months of this year.
Still, the key equity indexes had partially priced the win of Modi’s Bharatiya Janata Party through a more than 11% rally from their lowest closing this year in February.
“A thumping victory for Modi, surpassing his winning tally of 2014, has pleasantly surprised even the bulls, boosting the risk-on sentiment,” said Jagannadham Thunuguntla, senior vice president and head of research for wealth at Centrum Broking in Mumbai.
“Post political outcome, the narrative should come back to employment, economy and earnings.” A potential interest-rate cut and a possible market-friendly ministerial council could be the next trigger for stocks, Mahesh Nandurkar and Abhinav Sinha, analysts at CLSA India, wrote in an investor note.
“Mid-caps should be back in favour as domestic flows are expected to improve.” All the 19 sector indexes compiled by the BSE gained, led by a gauge of property stocks.
Twenty-seven of the 31 Sensex members and 44 of the 50 Nifty companies rose.
ICICI Bank’s 5.1% advance to a record was the steepest among Sensex and Nifty members. The lender has gained 20% in 2019.
Gauges of mid- and small-sized firms compiled by BSE climbed more than 2% yesterday.
Net incomes at 26 of the 41 Nifty companies that have reported earnings so far have either topped or met analyst estimates, according to data compiled by Bloomberg.
Meanwhile the rupee and the 10-year bond prices closed higher yesterday as analysts expect Narendra Modi-led Bharatiya Janata Party’s landslide victory in the 17th Lok Sabha elections will give the government enough firepower to avoid populist measures.
The BJP won 303 of the 542 Lok Sabha constituencies, when most thought its 2014 tally of 282 was insurmountable.
Also, benign retail inflation outlook, an expected rate cut, and hope of continued bond purchase by the Reserve Bank of India (RBI), boosted sentiment. However, analysts believe the rate cut will be a close decision due to global uncertainties, lack of clarity on monsoon and higher oil prices.
The rupee strengthened 0.7% to 69.53 a dollar. The 10-year bond yield closed at 7.225% compared with Thursday’s close of 7.236%. Since the beginning May, bond yields have fallen nearly 20 basis points.
So far this year, the rupee has risen 0.13% against the US greenback. During the period, foreign investors bought $9.51bn in Indian equities and sold $446.80mn in debt market.
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