Raghuram Rajan Hits the Sensex to 30KMar 05, 2015(17:59)
Sensex hit 30K for the first time ever after RBI surprised the markets by 25 basis points repo rate cut. This is the second time in less than 2 months RBI has gone ahead and cut the repo rate outside its monetary policy meet. Sensex opened at around 30,000 levels and breached the level in the few minutes of trade. However, the cheer lasted for first hour of the trade and profit taking pared the gains and dragged the index lower during the mid-session of the day. Selling pressure intensified in the last hour of the trade and the index gave off 700 points from its high and ended the day with three-fourth percentage point lower from the previous day.
The index has given a whooping return close to 50% ever since markets were factoring that the Modi government would win the election during the early January 2014. Sensex was hovering just above 20,000 levels and surged just above 25,000 levels on the day of election (16th May, 2014), when BJP government single handedly won the majority in the Lok Shaba. Markets have given thumps up, expecting the new government would take bold steps and fasten the reforms to bring the economy on track which would spur the growth to over 8-10% in the coming years.
Thereafter, markets continued the rally with FII’s pumping large amount of money into the Indian markets. The index surged from 25,000 to 29,000 levels in the first six months of the new government with initiation of new program like swachh bharat abhiyan and Jan dhan yojana besides, brining FDI in insurance and Defense which later got struck in Rajya Shaba. However, the government has chosen the ordinance route expecting them to clear in the upper house at a later date. Just as the saying, ‘fortune favors the brave’ came true during the last quarter of the previous years, the crude oil prices have corrected sharply during that period which helped the fuel prices to go down. This also gave relief to the government with respect to the fuel subsidy bill.
The index resumed its uptrend after a brief correction towards the end of the last calendar year. Sensex has seen sharp move in the month of January with a move of close to 3000 points from January low of 26800 levels to high of 29800 levels, in an eventful month. RBI surprised the markets with a cut in repo rate on 15th of January which led the market higher. Just after a week ECB has announced a bond buying program on 22nd January in which the quantum was above the market expectations. Those big events had led the market higher but failed to push the Sensex above 30000 levels.
The rally in the market was mainly driven by liquidity and the sentiments; Corporate failed to deliver on their Q3 earnings, which were reported during the first half of the February. Majority of the companies have posted dismal numbers for December quarters which led the sentiments down in the market. However, soon after the results season the markets ignored the earnings and started its upward movement in anticipation of strong budget. The Finance Minister Arun Jaitley presented his first Full budget in the Modi led government on 28th of February 2015. The budget presented was cheered by the market participations mentioning the budget was futuristic budget and will put economy on track and will strengthen dynamics of the domestic market on ground levels for long term perspective.
After the intense volatility on the budget day, the market has seen follow up buying which led Nifty to cross 9000 levels on Tuesday, i.e. on 3rd of March, 2015 and a day later the other benchmark indices Sensex has crossed the land mark of 30000 levels after the RBI governor gave second surprise In less than two months by cutting the repo rate by 25 basis points to 7.5%.
The journey of the domestic market has been stupendous in the last 12-15 months with the major indices giving a return of close of 50%. The rally in the market was driven by positive factors in terms of sentiments like BJP winning the general election with majority, easing of Inflationary pressure, recovery in the US economy and fall in the global crude oil prices. However, on ground we have not seen any recovery in the Indian Economy as indicated by Q3 numbers reported by the companies, slower than expected auto sales number in the last couple of months along with negative growth in the core data reported for the month of January (the index of 8 core industries shown negative growth of 1.8% in January).
Going forward, for the Sensex to hit another land mark of 40,000 levels, things have to start improving on the ground. The government has to continue with reform agenda and take bold steps to take the GDP growth to achieve targets of 8.1-8.5% for the next financial year and push it higher towards 10% levels in the subsequent years by keeping the fiscal deficit under control. Also, declining interest rates would boost the sentiments and flows into the equity market to improve in the next 12-18 months.
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