Animal Spirits of Investors on a High: AV Rajwade

Indian stock markets hit a record high for a third straight day on Tuesday. The BSE Sensex hit an all-time high of 25,711, while the broader Nifty hit a high of 7,683. The combined market capitalisation of India's publicly listed companies has crossed $1.5 trillion, or nearly Rs 90 lakh crore, as billions of dollars poured into India in the wake of Narendra Modi's stunning election victory last month.

Strong foreign buying has pushed both the Sensex and the broader Nifty up by over 20 per cent so far this year, posting a series of record highs - the latest on Monday - and far outperforming a 5 per cent gain in the MSCI Asia-Pacific index excluding Japan.

This rally has led many analysts to predict a multi-year bull run for Indian markets as investors turn bullish on Indian economy.

"Let's accept that animal spirits are not quantifiable...but I think they are crucial to what's happening to the equity markets and right now. Animal spirits of the investors do seem to be on a high," AV Rajwade, a consultant on currency and interest rate risk management told NDTV. (Watch: Video)

The "animal spirits" seem to have risen further after President Pranab Mukherjee addressed a joint sitting of Parliament on Monday outlining the economic agenda of the Narendra Modi government, he said.

Foreign investors bought Indian shares worth Rs 537 crore on Monday.

The Narendra Modi-led BJP government would focus on bringing down inflation, fuelling growth and creating jobs, reviving manufacturing, Mr Mukherjee said.

He also said the new government would work on simplifying the existing tax structure.

Investors are hopeful that Mr Modi can turnaround the Indian economy which is mired in its worst slowdown in decades, drawing confidence from his economic track record as chief minister of Gujarat.  

"I think the record of the prime minister, a three-time chief minister of Gujarat, the way he managed his election campaign, I think the way he has taken over as prime minister, I think all the initial steps suggest that governance is going to be tightened very much and I imagine that there are much better prospects now of the agenda getting implemented." Mr Rajwade said.

The first test of the new government's intentions would be the budget, which is likely to be announced in early July. The new government's budget proposal would be watched closely for the tax law amendments it may bring with many foreign investors having gone for arbitration, Mr Rajwade said.

British telecom giant Vodafone is involved in a bitter tussle with the Indian government over retrospective taxation. It is facing tax claims and interest totalling more than Rs 27,000 crore in India, including Rs 14,200 crore for the acquisition of Hutchison, the telecom major said in its annual report.