Indian shares hit record highs on hopes of new government

Indian shares hit record highs on hopes of new government

POSTED: 07 Mar 2014 23:08
India’s shares hit fresh a lifetime peak on Friday, boosted by easing strain on public finances and hopes a pro-business government would soon be elected to bring economic growth back on track.

MUMBAI: India’s shares hit fresh a lifetime peak on Friday, boosted by easing strain on public finances and hopes a pro-business government would soon be elected to bring economic growth back on track.

The Bombay Stock Exchange’s benchmark index gained 2.08 per cent from its previous close to reach a record of 21,960.89 points, while the National Stock Exchange index rose to 6,537.80 points, posting a 2.13 per cent jump.

At the end of the day, the BSE and NSE indices settled at 21,919.79 points and 6,526.65 points respectively.

Analysts say the share surge is driven by opinion polls pointing to an election win by the main opposition Bharatiya Janata Party (BJP), seen as business-friendly and capable of pushing through economic reforms.

The results of the election to be held in phases are due in mid-May.

“All surveys are suggesting that most likely (BJP candidate) Narendra Modi will take over as prime minister, which should be good for business,” said Rahul Bhandawat, an equity analyst at Mumbai’s Equentis Capital.

A recent survey by the US-based Pew Research Center suggested 63 per cent of Indian voters want the BJP to form the next government, and indicated voters perceive Modi as the best leader to push through economic reforms and improve governance.

A string of corruption scandals and an economy growing at a decade-low of just under five per cent have drained popularity away from the ruling left-leaning Congress-led coalition.

Indian shares have also gained traction from signs the country may be getting its public finances in order.

The current account deficit — the broadest trade measure — showed a slide to 0.9 per cent of gross domestic product (GDP) or $4.2 billion in the three months to December, from 6.5 per cent of GDP or $31.9 billion in the same period a year earlier.

The deficit’s ballooning to a record 4.8 per cent of GDP in the full 2012-13 fiscal year triggered market turmoil and prompted analysts to warn India could lose its prized investment-grade credit rating.

Recent stock market gains have also been propelled by foreigners buying into the so-called “India story” of potential high returns in the longer term.

Foreign institutional investors (FIIs) have purchased $5.5 billion of local equities, data from the Securities and Exchange Board of India showed.

Despite positive voter perception, analysts say Modi would have a tough job on his hands to get the economy back on track and they remained cautious despite the market cheer.

“The current gains (in stocks) are unlikely to be start of a new bull run,” the Equentis Capital analyst said, adding that a big bout of share selling could not be ruled out.