MUMBAI (Reuters) - Stocks extended a stunning post-election rally to 20 percent in two days on Tuesday on expectations the ruling coalition's decisive victory will lead to more privatisations, financial sector reforms and increased infrastructure spending.
The rupee also extended gains to a five-month peak, driven by hopes foreign investors would keep buying stocks, but bonds backtracked as worries about how much money the new government would need checked optimism.
In choppy trade after Monday's 17.3 percent surge, the benchmark stock index opened at an 8-month high and then fell back, only to recover again to be up 2.1 percent at noon (0630 GMT).
Top infrastructure play L&T (LT.NS : 1343.15 +111.5) was the major gainer, adding another 14.5 percent to Monday's 25 percent jump, as investors thought it would benefit from a government drive to update the country's creaking infrastructure.
State-run firms such as State Bank of India (SBIN.NS : 1753.95 +177.4) and energy explorer ONGC (ONGC.NS : 995.7 +48.5) also extended Monday's sharp gains as traders bet that the Congress party-led coalition may sell stakes in the firms to help fund spending plans and a large budget deficit.
"From the equity perspective, near-term valuations have become rich and performance relative to other major Asian markets is now decidedly superior," Nomura analysts said in a note.
While the MSCI index of Asian markets excluding Japan has risen about 7.5 percent this month, the Indian market had soared by 25 percent through Monday in the same period.
The spurt brought gains for India's stock market to around 53 percent so far this year, bringing the main index back to levels last seen in early September 2008 before the collapse of Lehman Brotehrs send global markets into a tailspin.
Overall volume in Tuesday morning trade was heavy at about 400 million, close to the daily average so far this year.
Nomura advised caution after the market's jump, saying India's already large budget deficit and the global slowdown meant policy was unlikely to produce a sudden acceleration in growth.
REFORM WISH LIST
The Congress party was expected to appoint reformers to key positions, and analysts expect it to push ahead on stalled reforms that could boost flagging growth in Asia's third-biggest economy.
UBS expects foreign investment limits in the insurance and multi-brand retail sector to be raised, and Citigroup was looking for higher foreign direct investment limits in real estate and a speeding up of infrastructure project approvals.
Citigroup also expected stake sales of state assets in the banking and energy sector, along with some regulation changes.
Not all shares were up on Tuesday, with exporters feeling the pinch of the rupee's sharp gains. The currency has risen 5 percent since last Thursday and 10 percent from a record low hit in early March.
Leading tech sector firms Infosys (INFOSYS.BO : 1563.75 -206.1), Wipro (WIPRO.NS : 385.35 -31.6) and Tata Consultancy (TCS.NS : 669.75 -74.1), who earn most of their income overseas, led losses on worries the rupee's rise would hit their earnings.
YIELDS RISE
Bonds lost Monday's momentum after the central bank increased the size of two scheduled auctions this month to 150 billion ($3.2 billion) rupees each from 120 billion rupees.
Planned record government borrowing unsettled debt markets in February and March, and they remain vulnerable to any suggestion of increased bond issuances to fund the fiscal deficit.
The benchmark 10-year bond yield jumped 12 basis points to 6.43 percent in opening trades, but later trimmed the rise to eight basis points.
"We may briefly test 6.50 percent today, but unless supply fears materialise into fiscal profligacy, I don't see yields moving much higher, but the budget will be the decider," Churchil Bhatt, a bond dealer at ING Vysya Bank.
Five-year swap rates rose to 5.66/67 percent from Monday's close of 5.48/5.53.
The partially convertible rupee rose to five-month high of 47.27 as it extended Monday's 3.2 percent jump, but pared gains as importers bought dollars and traders worried the Reserve Bank may step in to check gains.
The rupee has ridden a revival in foreign flows into the stock market. Foreign funds have been net buyers of more than $4 billion of shares since mid-March.
Nomura sees the rupee strengthening to 46.5 by end 2009.
Three-month annualised dollar/rupee forwards eased to 3.30 percent from 3.34 percent at its previous close on hopes of soft interest rates. One-month rupee volatilities was at 14 percent, unchanged from last week.
Tuesday, May 19, 2009
FUND VIEW - Mutual fund managers term stx surge irrational
MUMBAI (Reuters) - A surge in Indian shares, that halted trade on Monday, has stunned fund managers who said the rise is unjustified and expecting immediate big bang reforms and a revival in the economy would be a mistake.
Following are the reactions from fund managers to a more than 17 percent spike in Indian shares on Monday:
SAMEER NARAYAN, HEAD-EQUITY, FORTIS INVESTMENT MANAGEMENT:
"It is very difficult to say if it's justified. Yes, there is definitely some sort of stability. The outlook has improved at least on the stability aspect... but there are a lot things that need to get fixed in terms of the entire reform agenda.
"Right now, it is only expectations and hope. May be we might be pricing in far to early.
"Now valuations are almost 16 times of consensus earnings and no longer cheap.
TOP BETS: Financial and energy
SANJAY SINHA, CEO, DBS CHOLAMANDALAM ASSET MANAGEMENT:
"A rally like this seems to be suggesting that our fundamentals have improved. (It) is discounting what would be a situation 12-18 months down the line.
"In the private sector it will lead to much better investment climate. In the capital market it will be much more enthusiastic participation by all sections and on the global level the visibility of India as an investment destination will become even more bright and that should attract capital at affordable rate.
"If you are coming into the market please do not come with the perspective of a three-month, six-month."
PANKAJ TIBREWAL, FUND MANAGER, PRINCIPAL PNB MUTUAL FUND:
"Actually, fundamentally speaking, things will take its own sweet time. It's not that the government today is coming to power and tomorrow they will do some big bang reforms.
"Though markets run ahead in anticipation, after today's move, the market will start asking: what next?
"Probably a couple of weeks later you will start looking at what's happening globally.
"Flow will continue may be positively to India but you need to take it with a pinch of salt. Are we running too fast, too soon? I think that's the question you need to ask to yourself."
TOP BETS: Infrastructure, FDI related sectors such as aviation, telecom, insurance.
MANISH BHANDARI, FUND MANAGER, ING INVESTMENT MANAGEMENT:
"What you have to do is to look at all the bills that the Congress wanted to introduce, were debated and (the) Left had shut doors on. And insurance was one. Those are the things we will be watching carefully.
"I am worried about people's expectations, which are very high. We are slowing down. Don't see one month's frame."
TOP BETS: Capital market linked sectors, infrastructure
ANAND SHAH, HEAD-EQUITY, CANARA ROBECO ASSET MANAGEMENT:
"This is a bigger verdict than 1991. We haven't seen such a verdict and with Manmohan Singh at the helm, this much of a reaction is fair.
"Indian consumers continue to remain my bet. With a stable government consumption is only going to pick up.
"I am wary of IT and metals because the rupee has appreciated and when you have your domestic consumption story intact, why will you bet on a recovery in US?"
T.P. RAMAN, MANAGING DIRECTOR, SUNDARAM BNP PARIBAS ASSET MANAGEMENT:
"Now that the mandate is clear and the Congress has emerged as a very, very strong winner that it can have its say.
"Every person who is connected with the capital market will definitely feel bullish."
"Euphoric moments will probably stabilise and settle down. The direction of progress is well known, but then, what is important is the push and pace of progress has to be fast and now I think it can be safely assumed that the pace of the progress will be faster.
TOP BETS: Infrastructure, power
Following are the reactions from fund managers to a more than 17 percent spike in Indian shares on Monday:
SAMEER NARAYAN, HEAD-EQUITY, FORTIS INVESTMENT MANAGEMENT:
"It is very difficult to say if it's justified. Yes, there is definitely some sort of stability. The outlook has improved at least on the stability aspect... but there are a lot things that need to get fixed in terms of the entire reform agenda.
"Right now, it is only expectations and hope. May be we might be pricing in far to early.
"Now valuations are almost 16 times of consensus earnings and no longer cheap.
TOP BETS: Financial and energy
SANJAY SINHA, CEO, DBS CHOLAMANDALAM ASSET MANAGEMENT:
"A rally like this seems to be suggesting that our fundamentals have improved. (It) is discounting what would be a situation 12-18 months down the line.
"In the private sector it will lead to much better investment climate. In the capital market it will be much more enthusiastic participation by all sections and on the global level the visibility of India as an investment destination will become even more bright and that should attract capital at affordable rate.
"If you are coming into the market please do not come with the perspective of a three-month, six-month."
PANKAJ TIBREWAL, FUND MANAGER, PRINCIPAL PNB MUTUAL FUND:
"Actually, fundamentally speaking, things will take its own sweet time. It's not that the government today is coming to power and tomorrow they will do some big bang reforms.
"Though markets run ahead in anticipation, after today's move, the market will start asking: what next?
"Probably a couple of weeks later you will start looking at what's happening globally.
"Flow will continue may be positively to India but you need to take it with a pinch of salt. Are we running too fast, too soon? I think that's the question you need to ask to yourself."
TOP BETS: Infrastructure, FDI related sectors such as aviation, telecom, insurance.
MANISH BHANDARI, FUND MANAGER, ING INVESTMENT MANAGEMENT:
"What you have to do is to look at all the bills that the Congress wanted to introduce, were debated and (the) Left had shut doors on. And insurance was one. Those are the things we will be watching carefully.
"I am worried about people's expectations, which are very high. We are slowing down. Don't see one month's frame."
TOP BETS: Capital market linked sectors, infrastructure
ANAND SHAH, HEAD-EQUITY, CANARA ROBECO ASSET MANAGEMENT:
"This is a bigger verdict than 1991. We haven't seen such a verdict and with Manmohan Singh at the helm, this much of a reaction is fair.
"Indian consumers continue to remain my bet. With a stable government consumption is only going to pick up.
"I am wary of IT and metals because the rupee has appreciated and when you have your domestic consumption story intact, why will you bet on a recovery in US?"
T.P. RAMAN, MANAGING DIRECTOR, SUNDARAM BNP PARIBAS ASSET MANAGEMENT:
"Now that the mandate is clear and the Congress has emerged as a very, very strong winner that it can have its say.
"Every person who is connected with the capital market will definitely feel bullish."
"Euphoric moments will probably stabilise and settle down. The direction of progress is well known, but then, what is important is the push and pace of progress has to be fast and now I think it can be safely assumed that the pace of the progress will be faster.
TOP BETS: Infrastructure, power
Mutual funds fail to cash in as markets hit circuit breaker
By Chirag Madia
Dalal Street on Monday had one of its finest day, however, the Indian Mutual Fund (MF) industry could not benefit from this rise, as they could not buy because trade was halted for the day after benchmark indices breached 20% circuit breaker. However, it has forced many fund managers to rework their strategies. It is now expected that funds would start actively participating in the markets, utilising their cash levels.
Despite domestic markets surging by over 17% and reaching to 14K levels, officials from the fund houses say that, they will start deploying the cash in the markets, which they were holding in various schemes, as they feel this is the right time to enter the enter the equity markets. And with the markets remaining closed for large part of Monday, the Association of Mutual Funds in India (Amfi) asked the fund houses to declare Monday, a non-business day for equity and hybrid schemes as many scrips were not traded during the day. On Monday, the 30-share Sensex (^BSESN : 14213.73 -70.48) of Bombay Stock Exchange (BSE) closed the day at 14,284.21 points gaining 2,110.79 points or 17.34%. The broader SandP CNX Nifty (^NSEI : 4318.45 -4.7) of National Stock Exchange (NSE) added 651.50 points or 17.74% to end the day at 4,323.15 points.
Gopal Agrawal, head-equity at Mirae AMC said, "After the Congress led UPA coming back of power and equity bourses rising at this level, we think that people will start deploying the cash in the market. Now with UPA coming with clear majority, new government policies will be announced and in the coming days markets are likely to continue their upward journey." However, fund managers don't rule out that, in the long run global economy and inflows from the foreign institutional investors (FII) will shape up the domestic markets. An senior official from the leading broking house said, "The sudden surge in the markets were totally unexpected, we will start deploying the cash but only in the benchmark heavyweight as this upward rally does not change the earnings momentum path for the next few quarters. Similarly, the global environment is still in the process of limping back to normalcy."
Most of the fund managers were seen getting into emergency meetings to discuss the new development. "With the surge looking so strong on Monday there was a need to get together and rack our brains," he added.
Some MF players also stated that, cash will be deployed from the schemes which are holding cash of over 10%. Waqar Naqvi CEO of Taurus AMC said, "Since past few trading session we have slowly deployed our cash in the markets. In the coming days also we will continue deploying the cash in the markets. There are also strong chances that, markets are going to continue their rally and profit-booking will only take place after few weeks of trading." The trend that was observed in the markets was that overseas investors were net buyers and the domestic mutual funds were sellers in the past month.
Dalal Street on Monday had one of its finest day, however, the Indian Mutual Fund (MF) industry could not benefit from this rise, as they could not buy because trade was halted for the day after benchmark indices breached 20% circuit breaker. However, it has forced many fund managers to rework their strategies. It is now expected that funds would start actively participating in the markets, utilising their cash levels.
Despite domestic markets surging by over 17% and reaching to 14K levels, officials from the fund houses say that, they will start deploying the cash in the markets, which they were holding in various schemes, as they feel this is the right time to enter the enter the equity markets. And with the markets remaining closed for large part of Monday, the Association of Mutual Funds in India (Amfi) asked the fund houses to declare Monday, a non-business day for equity and hybrid schemes as many scrips were not traded during the day. On Monday, the 30-share Sensex (^BSESN : 14213.73 -70.48) of Bombay Stock Exchange (BSE) closed the day at 14,284.21 points gaining 2,110.79 points or 17.34%. The broader SandP CNX Nifty (^NSEI : 4318.45 -4.7) of National Stock Exchange (NSE) added 651.50 points or 17.74% to end the day at 4,323.15 points.
Gopal Agrawal, head-equity at Mirae AMC said, "After the Congress led UPA coming back of power and equity bourses rising at this level, we think that people will start deploying the cash in the market. Now with UPA coming with clear majority, new government policies will be announced and in the coming days markets are likely to continue their upward journey." However, fund managers don't rule out that, in the long run global economy and inflows from the foreign institutional investors (FII) will shape up the domestic markets. An senior official from the leading broking house said, "The sudden surge in the markets were totally unexpected, we will start deploying the cash but only in the benchmark heavyweight as this upward rally does not change the earnings momentum path for the next few quarters. Similarly, the global environment is still in the process of limping back to normalcy."
Most of the fund managers were seen getting into emergency meetings to discuss the new development. "With the surge looking so strong on Monday there was a need to get together and rack our brains," he added.
Some MF players also stated that, cash will be deployed from the schemes which are holding cash of over 10%. Waqar Naqvi CEO of Taurus AMC said, "Since past few trading session we have slowly deployed our cash in the markets. In the coming days also we will continue deploying the cash in the markets. There are also strong chances that, markets are going to continue their rally and profit-booking will only take place after few weeks of trading." The trend that was observed in the markets was that overseas investors were net buyers and the domestic mutual funds were sellers in the past month.
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