Sensex jumps 4.2% as FIIs step up buying

The key benchmark indices surged to 32-month highs on strong foreign fund inflows, higher advance tax payment by prominent Indian firms and a less hawkish monetary policy stance from the central bank at a mid-term policy review. The market gained in 4 out of 5 trading sessions in the week.



The BSE Sensex jumped 795.09 points or 4.23% in the week ended Friday, 17 September 2010, to settle at 19,594.75, its highest closing level since 17 January 2008. The S&P CNX Nifty gained 244.90 points or 4.34% to 5,884.90, its highest closing level since 17 January 2008.

The BSE Mid-Cap index rose 0.67%. The BSE Small-Cap index fell 0.1%. Both the indices underperformed the Sensex.

Foreign institutional investors (FIIs) are in a buying spree in India. FII inflow in September 2010 totaled Rs 12442.80 crore (till 16 September 2010). FIIs had bought equities worth Rs 11687.50 crore in August 2010. FII inflow in the calendar year 2010 totaled Rs 71824.50 crore (till 16 September 2010).

At a mid-term policy review on Thursday, 16 September 2010, the Reserve Bank of India (RBI) signaled that it may be nearing a pause in its current tightening cycle. The central bank said its rate and liquidity actions since October 2009 have been driven by two considerations -- normalisation of the monetary policy stance as the crisis abated and inflation management. The Reserve Bank of India believes that the tightening that has been carried out over this period has taken the monetary situation close to normal, it said. Consequently, the role of normalisation as a motivation for further actions is likely to be less important, the RBI said.

Current and expected macroeconomic conditions will be the more important considerations going forward, the RBI said. The Reserve Bank of India will continue to monitor these conditions, particularly the price situation, and take further action as warranted, the RBI said in a statement.

The RBI raised its repo rate, or benchmark lending rate, by a quarter point to 6%, at a mid-term monetary policy review. The central bank also hiked the reverse repo rate, or the rate at which it borrows funds, by half a point to 5%. Both these changes will take place with immediate effect.

India's economic expansion will not be impacted by the central bank's decision to hike policy rates, Montek Singh Ahluwalia, deputy chairman of the Planning Commission said on Thursday

India's exports grew 22.5% to $16.64 billion in August 2010 over August 2009, while imports rose 32.3% to $29.7 billion. As a result, trade deficit, or the difference between exports and imports, widened to $13.5 billion. During the April-August 2010 period, exports posted a growth rate of 28.6% to $85.27 billion over the previous year, while total imports grew by 33.1% to $141.89 billion, according to initial estimates released by the Ministry of Commerce and Industry.

Buoyed by earnings growth in banks, financial services and manufacturing firms, Corporate India has paid 15% higher advance tax in the June-September 2010 quarter over the year-ago period. Companies pay advance taxes in four installments throughout the year based on the business they are doing and hence, the advance tax payments made are seen as a barometer of the companies' performance.

The government's indirect tax collections grew 45% to Rs 27,947 crore in August 2010 over August 2009. For the first five months from April 2010 to August 2010 of the current fiscal, the centre's indirect tax collections grew nearly 46% to Rs 1,24,170 crore over the previous year. The centre has targeted indirect tax collections of Rs 3.15 lakh crore for the fiscal year ending March 2011.

Robust July 2010 industrial production growth, good monsoon rains this year, data showing sustained buying by foreign funds and firm global stocks, helped domestic bourses kick off the new trading week with a bang on Monday, 13 September 2010. The BSE 30-share Sensex jumped 408.67 points or 2.17% to 19,208.33.

The key benchmark indices rose for the sixth straight day on Tuesday, 14 September 2010, on data showing heavy buying by foreign funds during the past two trading sessions on Thursday, 9 September 2010 and Monday, 13 September 2010. Data showing easing of inflation also helped equities score further gains. The BSE 30-share Sensex jumped 138.63 points or 0.72% to 19,346.96

The key benchmark indices gained for the seventh straight day on Wednesday, 15 September 2010, on reports that prominent Indian firms such as Reliance Industries, HDFC, State Bank of India, Hindalco Industries and ICICI Bank, have paid higher advance tax in Q2 September 2010. Data showing heavy buying by foreign funds recently and good monsoon rains in the current monsoon season, underpinned sentiments. The BSE 30-share Sensex jumped 155.05 points or 0.8% to 19,502.11.

The key benchmark indices edged lower on Thursday, 16 September 2010, as profit taking emerged after a recent solid surge. Weak European and Asian stocks and lower US index futures weighed on investor sentiment. The BSE 30-share Sensex lost 84.62 points or 0.43% to 19,417.49.

Indian stocks resumed their winning ways on Friday, 17 September 2010, after a day's pause on Thursday, 16 September 2010. The barometer index BSE Sensex and the 50-unit S&P CNX Nifty scaled 32-month closing highs. Firm global stocks and data showing heavy buying by foreign funds recently, underpinned sentiments. Hopes that the central bank may be nearing a pause in its current interest rate tightening cycle, also aided the rally on the domestic bourses. The BSE 30-share Sensex jumped 177.26 points or 0.91% to 19,594.75.

India's largest mortgage lender by total income HDFC jumped 8.48%. The stock hit record high of Rs on 17 September 2010. Housing Development Finance Corporation (HDFC) has reportedly paid an advance tax of around Rs 400 crore in Q2 September 2010 as against Rs 320 crore in Q2 September 2010.

Higher tax payment indicates that HDFC is geared to give a healthy financial performance in Q2 September 2010.

India's largest bank by net profit and branch network State Bank of India (SBI) rose 3.74%. As per media reports, SBI has sought the finance ministry's approval for raising Rs 20000 crore through a follow-on public offering (FPO) or a rights issue. The proposed capital raising would facilitate the bank to improve its capital adequacy ratio from 13.5% as of Q1 June 2010, thereby enabling the bank to grow at a healthy pace over the next couple of years.

India's second largest private sector bank by net profit HDFC Bank rose 7.11 % on reports its advance tax payment jumped 41% to Rs 600 crore in Q2 September 2010 from Rs 425 crore in Q2 September 2009. The stock hit a record high Rs 2422.80 on 17 September 2010.

India's largest private sector bank by net profit ICICI Bank gained 6.17%. The bank has reportedly paid advance tax of Rs 600 crore in Q2 September 2010 compared with Rs 500 crore in Q2 September 2009.

Index heavyweight Reliance Industries (RIL) jumped 7.18%. As per reports the company is in advanced talks with US-based Chesapeake Energy to buy a stake in Eagle Ford shale gas project in the US.

IT stocks rose on positive economic data in US, the prime market for Indian IT firms. Infosys (up 2.86%), TCS (up 4.66%) and Wipro (up 3.04%) rose.

From auto space, Hero Honda Motors (up 1.03%), Mahindra & Mahindra (up 3.6%), Tata Motors (up 1.98%) and Maruti Suzuki India (up 5.55%), advanced.

DLF (up 9.43%), ACC (up 1.78%), Bharti Airtel (up 2.39%), RCom (up 1.74%), Tata Steel (up 2.04%), ITC (up 3.51%) and Larsen & Toubro (up 4.19%), edged higher.