Markets rally for second day on strong local, global cues

A combination of positive cues from domestic and overseas markets helped the Indian equity bourses extend its rally for the second consecutive day. Cues from overseas market that corporate earnings, especially in the banking sector, would be better than expected and signals from the government in India that it would continue on the reforms route resulted in renewed buying by foreign institutional investors (FIIs) and domestic institutional investors (DIIs).

According to provisional figures released by stock exchanges, FIIs bought net equities worth Rs 255.46 crore on Wednesday while domestic mutual funds and insurance companies bought equities to the tune of Rs 272.97 crore. As a result, the 30-share Sensex (^BSESN : 16632.01 -222.92) of the Bombay Stock Exchange (BSE) closed the day, gaining 399.54 points, or 2.88%, at 14,253.24 points. The broader SandP CNX Nifty (^NSEI : 4941.75 -63.8) of the National Stock Exchange (NSE) closed at 4,233.50 points, up by 2.97%, or 122.10 points.

Better than expected earnings from investment bank Goldman Sachs triggered a strong rally in the global markets. All key Asian equity indices extended their gains by 1% to 3.50%. Goldman Sachs bettered analyst forecasts by reporting a 33% rise in quarterly earnings with revenue of $13.6 billion against an estimate of $10.6 billion. On the domestic front, finance minister Pranab Mukherjee's announcement on Tuesday after market hours that the government aims to return to fiscal prudence and not just depend on monetization allayed fears regarding India 's growing fiscal deficit among market followers. It was also seen as a signal that there would definitely be a disinvestment programme in the offing. There was reassurance from the minister about the government's continuing dialogue with various ministries for identifying public sector undertakings for shedding the centre's holding.

Meanwhile, a survey conducted by 'ING Investor Management' shows that India enjoys the highest level of investor optimism across Asia-Pacific region. The survey states, "63% of Indian investors feel that the Indian economy is growing. Hence the proportion of investors taking aggressive strategy for 'capital appreciation' increased from 10% in first quarter of 2009 to 21% in second quarter of 2009. Further 84% of the Indian investors considered that the government policy on investment in second quarter 2009 was favourable compared to 47% in the previous quarter."

"Markets were, technically, in an oversold position. So a combination of feel good factors from global and domestic markets like better earnings reported by Goldman Sachs and expectations of monsoon advancing to other parts of the country triggered a rally in the equity market", said, Arun Kejriwal, MD, Kejriwal Research and Investment Services. For the second consecutive day, BSE small and mid cap index managed to outperform the benchmark Sensex by gaining 4.56% and 4.15%, respectively. The market breadth, which indicates the overall health of the market, remained robust throughout the trading session with 2,038 stocks edging higher in BSE compared to 557 stocks declining.

Among the sectoral indices BSE realty lead the pack gaining 7.98% while BSE metal and power index posted a gain of 5.67% and 4.77% respectively on Wednesday.

Experts argue that the stocks that had been battered heavily throughout last week post budget disappointment are witnessing value buying at lower levels. The stock of DLF Ltd, one of the largest realty players in India rose by 7.18% or Rs 21.55 to end the day at Rs 300.10. On the other hand among the metal sector Hindalco (HINDALC0.NS : 142 0) and Jaiprakash associates lead the rally posting a gain of 8.22% and 7.74% respectively.