Election optimism, FIIs take Sensex to record high

NDTV Profit Desk

07 Mar 2014, 11:42 AM IST

Pre-election rally: The Sensex has gained in the month before elections in each of the previous six elections, with the biggest advance coming in 2009 when the Congress-led United Progressive Alliance won a majority, according to Reuters research. "A pre-election rally is definitely underway. Flows, positioning, macro are all pointing towards its extension in the coming months," G. Chokkalingam, of Equinomics said. (Read: As India sets election dates, traders brace for stock rally)
Hopes of a stable government: Traders says a strong government will push much-need policy reforms critical to drive India's sluggish economy out of the current rut. According to Nomura, there is a consensus both within the BJP and from non-partisan outsiders that a BJP-led coalition will form a government. Stocks linked to the economic cycle such as banks, infrastructure and power have been the biggest gainers in the current rally. (Also read: Sensex, Nifty end at record high)
Foreign funds turn buyers: Overseas investors, the biggest driver of Indian stocks, have bought shares worth over Rs 6,000 crore in the previous 15 sessions supporting bullish sentiments on the Street. Shares with heavy Foreign Institutional Investors (FII) ownership have seen sharp gains. (Track the biggest gainers)
Stronger rupee, lower deficit: The rupee has recovered remarkably under the stewardship of RBI governor Raghuram Rajan. From a record low of 68.85 per dollar on August 28, 2013, the rupee has climbed to a high of 60.95 per dollar on Friday. A stable rupee has increased the confidence of foreign investors in the country. Current account deficit, which was the biggest drag on the rupee, has narrowed considerably helping the currency.
Global factors: There were questions around foreign fund flows after the US Federal Reserve announced a gradual withdrawal of its quantitative easing stimulus in December, but these fears have not played out so far. More recently, the standoff in Ukraine threatened to derail the rally in Indian stock markets, but latest reports indicate that diplomatic efforts have moderated the crisis. "As long as there is no armed conflict, it will be gradually coming off the radar," a chief currency trader told Reuters.

(With inputs from Reuters)