Poll results propel Dalal Street into new orbit

If the outcome of the Lok Sabha elections was unbelievable and stunning, then what happened on the Indian bourses was even better. May 18th was a momentous occasion in the history of India, both in terms of politics and capital markets. While the decisive verdict that the Indian voters delivered in the just concluded Lok Sabha polls was the best that Indian parliamentary democracy has got in a long, long time, then the reaction of the stock market was unimaginable. It may not be repeated ever again. For the first time ever, the key Indian stock indices hit an upper circuit - not once, but twice. Trading was first halted for a couple of hours within just a few seconds of opening bell, when the Nifty soared by over 17% upper circuit. When trading resumed at 11:55 am, it took just a few seconds for the market to freeze again, this time for the rest of the day. There was some buzz that the largest life insurance company may step in with basket selling, which could have kept the trading going. However, that was not to be.

The BSE Sensex rocketed by 2,110 points or 17.24 % to 14,284 while the NSE Nifty shot up 651 points or 17.35% to 4,323. However, neither the brokers nor the exchanges benefited from the frenzied buying. Total trade turnover in the market was Rs3,103 crores Cash + F&O. Only 842 stocks were traded on the BSE while 202 stocks witnessed action on the NSE.

PSU stocks were on a roll on hopes that the new Government may revive the disinvestment programme given that there is no Left to put up a stiff resistance to any such proposals. The Government badly needs to undertake some sort of disinvestment and raise money to partially offset the ballooning fiscal deficit, which is likely to cross double digits for a second year in a row in FY10. Shares of Neyveli Lignite, SCI, MMTC and PFC were among the prominent gainers. Infrastructure shares too jumped on expectations that the mush stronger UPA will boost spending on roads, bridges, power plants and metro rails to sustain a high growth rate in the coming years. L&T, JP Associates, BHEL, Gammon India, Punj Lloyd, GMR Infra and IVRCL Infra were some of the stocks that rose. Shares of insurance companies rallied on hope that the Government may hike the FDI limit in the sector, from the current 26% to 74%.

However, the market gave up some of the Monday's gains in the following days as traders booked profits amid persistent concern over the health of the Indian and global economy. Mid-Cap and Small-Cap shares, a space that missed out the magical gains of May 18, surged in a catch-up rally. Meanwhile, key global stock markets weakened amid renewed bad news about developed economies and the US housing market. While Japan reported a record drop in its GDP for the January-March quarter, the Federal Reserve said that it will take 5-6 years for the US economy to fully recover from the current recession. US housing starts and building permits hit record lows in April. S&P cut UK's AAA rating outlook to negative from stable.