Diesel price hike fires up market, experts see more action

The government's bold decision to hike diesel prices and approval of a new economic stimulus plan by US Federal Reserve pushed the BSE Sensex up by a robust 715 points to end at 14-month high during the week.

The sentiment remained positive throughout the week, despite inflation rising by a higher-than-expected 7.55 per cent in August, which may restrain the Reserve Bank of India (RBI) from cutting interest rates at its monetary policy review next week, said dealers.

The 30-share BSE benchmark resumed higher at 17,780.93 and touched 18,000 level after six months to 18,498.54 before concluding the week at 14-month closing high at 18,464.27, showing a net gain of 714.62 points, or 4.03 per cent. The Sensex had closed at 18,518.22 on July 26, 2011.

The 50-share NSE index Nifty also shot up by 218.95 points, or 4.09 per cent, to close at nearly seven-month high of 5,577.65.

"Sensex rallied 2.5 per cent on Friday in response to the government's first major move to curb fiscal deficit by raising diesel price and announcement of economic stimulus by the US Federal Reserve. Aviation, retail and cable TV services shares rallied on hopes of green signal to hike in FDI cap," said Sanjeev Zarbade, VP-Private Client Group Research, Kotak Securities.

"After three years of policy paralysis, the government has broken the jinx. Market had been pessimistic for long as only bad news were coming out like CWC, 2G, coal, mining scams etc which made some FII to always go short on Indian shores hoping nothing positive can come," Kishor Ostwal, CMD, CNI Research Ltd, said.

"But the government acted in a vibrant fashion for the last two days. It raised diesel price by over Rs 5 per litre and also announced FDI in multi-brand retail, FDI in power exchanges and FDI in civil aviation. This is a strong and big trigger for the equity markets," he said.

"Investors need to note that retail FDI was already announced by Cabinet but got stuck in Rajya Sabha. Now it is left to states and states may not respond kindly even those ruled by Congress. Hence, it (multi-brand retail) is still far from reality. As far as other FDI in civil aviation is concerned it is nothing but addition to 200-odd pending Bills in Parliament," Ostwal added.

"QE 3 from US Fed also added to the bullish sentiment. Market will cross 5,600 levels on Monday and probably even cross 5,630 once but may see some profit booking later in the week for rolls which is due on September 27. Even on Friday, when market rose by 450 points, midcaps did not participate (in rally)," he commented.

Domestic market received a boost as Asian and European shares jumped after Germany's top constitutional court allowed the country to ratify the euro-area bailout fund with certain conditions.

Increased buying by Foreign Institutional Investors (FIIs) also the factor behind smart rise in the share values. They pumped in nearly Rs 5,104.62 cr during the week, including provisional figure of Rs 2,833.72 cr on Friday.

Metal shares gained as prices of industrial metal rallied after the US Federal Reserve launched aggressive stimulus that could boost demand for the metals.

Major gainers from the Sensex pack were - Hindalco Ind (10.53 per cent), Tata Motors (10.01 per cent), Larsen (8.38 per cent), Tata Steel (8.01 per cent), Icici bank (6.95 per cent), Coal India (6.11 per cent), Reliance Ind (5.72 per cent), Jindal Steel (5.69 per cent), Infosys (5.48 per cent), HDFC (5.27 per cent), Maruti Suzuki (4.26 per cent), SBI (3.96 per cent), Hero Motoco (3.12) and Gail India (2.96 per cent).

Among the sectoral indices, the BSE-Metal rose by 5.42 per cent, followed by BSE-CG (5.26 per cent), BSE-Realty (5.22 per cent), BSE-Bankex (4.66 per cent), BSE-Auto (4.25 per cent), BSE-Oil&Gas (4.07 per cent), BSE-Power (3.85 per cent), BSE-IT (3.69 per cent) BSE-Teck (3.15 per cent), BSE-CD (2.78 per cent) and BSE-PSU (2.08 per cent).

The dollex-30 and the dollex-100 also rose by 5.83 per cent and 5.33 per cent, respectively.

The BSE-100 and the BSE-200 shot up by 3.54 per cent and 3.29 per cent on the back of heavy buying from retail investors.

Total turnover at BSE and NSE rose to Rs 10,663.21 crore and Rs 49,445.49 crore, respectively from the last weekend's level of Rs 9,146.43 crore and Rs 43,692.26 crore.