Lower inflation, in-line GDP boosts market sentiment

After lying low for the entire week, Indian stock market benchmarks surged on Friday to close over 3 per cent higher backed by host of positive cues from domestic and global markets.

Market opened with a gap-up reacting to drop in inflation to 12.40 per cent against expectation of 12.83 per cent, on moderation in prices of vegetables, meat, cement and a few non-administered petroleum products.

Directionless till Thursday, investors took this opportunity to build positions in recently beaten down banking and realty stocks as fears of Reserve Bank of India raising interest rates eased.

Market also got a lift from a rally in Asia and the US earlier on the back of a surprise 3.3 per cent first quarter GDP growth in US. Retreating oil prices as traders discounted threat of hurricane Gustav to US installations boosted sentiments further. However, oil climbed back up to $117 in Friday’s trade as threat from Gustav continued to loom.

Back home, data showed the Indian economy grew at 7.9 per cent in the April-June quarter against previous quarter’s 8.8 per cent. The numbers were also disappointing compared with previous year’s 9.2 per cent growth.

This is the first time in last thirteen quarters that GDP growth has fallen below 8 per cent, but India is still expected to clock an annual growth of 8 per cent.

“Moderation will continue for at least for two more quarters (factoring the further tightening by RBI). However, we do not expect GDP to fall below 8 per cent in 2008-09. The consumption demand (both from consumer and government) is still strong which should support the manufacturing sector. Investment and savings are also satisfactory and is reflected in growth of construction sector in this quarter (11.4% against 7.7% a year ago),” said Krupresh Thakkar, research analyst, India Capital Markets.

“Growth in agriculture holds the key, as a good season would increase demand for other products from industrial and service sectors boosting the economy. The slight slowdown in service sector is an area of concern but we would like to watch the figures for one more quarter,” he added.

Bombay’s Stock Exchange’s Sensex closed at 14,564.53, up 516.19 points or 3.67 per cent. The 30-share index touched a high of 14,586.16 and low of 14,279.02.
National Stock Exchange’s Nifty ended at 4,360, up 3.46 per cent or 146 points. It touched a high of 4,368.80 and low of 4,230.60.
Hitendra Nayee, institutional-head, dealing, India Capital Markets, said, “domestic funds and foreign institutions both turned buyers. After months, we saw inflation climbing down and GDP numbers were also in line with expectations. The good thing is volumes were high, that shows interest returning back into the market. Now, the NSG meet will be keenly watched. We are expecting short-term uptrend in the market.”

However, second rung stocks were behind in the race as compared with heavyweights. BSE Midcap Index closed 2.38 per cent higher at 5,742.29 and BSE Smallcap Index gained 1.61 per cent to close at 6,891.64.
State Bank of India (7.19%), Reliance Infrastructure (5.97%), ICICI Bank (5.93%) Tata Motors (5.44%) and DLF (5.35%) were the major Sensex gainers. There were no losers in the index.
Shares of Tata Steel surged nearly 5 per cent after the company posted 60.5 per cent rise in April-June consolidated net profit late on Thursday. The company’s shares ended up 4.99 per cent at Rs 600.35 with volume traded at 22,11,323 against two-week average of 14,78,472 shares. The steel maker is in talks to raise at least $1 billion from a stake sale to private equity firms or a private placement of shares, according to media reports.

Gammon Infrastructure Projects ended up 1.17 per cent at Rs 94.95 on BSE after it got an order for a bridge project worth Rs 8 billion.

Jai Corp ended up 5 per cent at Rs 324.30 on market talk that Mukesh Ambani’s Reliance Industries may grant it a gas distribution contract.

On BSE , advances were 1,851 and declines 790.

According to NSE website, total turnover was Rs 10,626.94 crore (provisional), up from Rs 8,769 crore Wednesday—a prior to settlement day. Avdhoot Investment


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