Stocks: The BSE benchmark Sensex ended the week above 20,000 after two years due to strong buying mainly in refinery, realty and PSU sectors on the back of partial deregulation of diesel prices and the government's decision to defer the implementation of controversial anti-tax evasion proposal GAAR.
Rate cut hopes by RBI in its monetary policy meeting on January 29 after a fall in inflation, as measured by Wholesale Price Index (WPI), to three-year low and persistent foreign funds inflow into equities also boosted the market.
Comments from the finance minister about immediate priority of the government to keep the investment cycle going, too, aided the upsurge.
The 30-issue Sensex jumped 243 points on Monday, its best single-day gain in the current calender year, on all- round buying as government deferred implementation of the General Anti-Avoidance Rules (GAAR) by two years, from April 2014 to to April 2016, and a fall in inflation in December.
The BSE benchmark resumed higher at 19,689.09 and shot up further to a high of 20,126.55 before ending at 20,039.04, a gain of 375.40 points, or 1.91%, its best level since January 6, 2011.
The NSE 50-share Nifty also rose by 113.10 points, or 1.90%, to end at over two-year high of 6,064.40.
"The partial decontrol in diesel prices triggered a rally in oil marketing companies," said Amar Ambani, Head of Research at brokerage IIFL.
The move to allow hike in diesel prices periodically to a maximum of 0.50 paisa per month would enable OMCs to cut their under-recoveries, thereby reducing the burden of fiscal deficit of Government. It will also reduce the oil subsidy bill, where diesel accounts for 59% of total subsidy.
Refinery counters like IOC, ONGC, BPCL, OIL, HPCL and RIL zoomed between 7.11% and 22.83%. As a result, the BSE-Oil&Gas flared up by 10.96% and was the top gainer from the sectoral indices.
Drop in WPI-based inflation to a three-year low of 7.18% in December also triggered buying in stocks.
Buying was so strong that stock markets ignored data showing that retail inflation rose to 10.56% in December from 9.90% in November.
Foreign Institutional Investors (FIIs), the main market driver, remained net buyers throughout the week, investing a net Rs. 4,977.79 crore, including the provisional figure of January 18.
The market ended in the green on four out of five trading days. On Wednesday, it had dipped by 169 points as rate cut hopes were dented by RBI Governor D Subbarao's view that inflation is "still high".
The rally was also attributed to approval of 50% reduction by the Government in reserve price of spectrum used by CDMA operators and good third quarter results announced by some major corporates.
Thirteen out of 30 Sensex scrips ended with gains while others finished with losses.
Second-line counters, however, underperformed the sensex, indicating lack of any major retail investments. The BSE-Small cap index settled down by 1.13% while the BSE-Midcap was up by a mere 0.12%.
State-run oil and gas major, ONGC, was the top gainer in the Sensex pack with a rise of 15.58%. Petro-chem giant Reliance Industries (RIL) gained 7.11%. Other gainers from the sensex pack were NTPC (7.67%), Bharti Airtel (7.38%), GAIL India (5.51%), ITC (4.95%), TCS (3.43%) and Infosys (2.85%).
However, M&M dropped by 5.90%, followed by Wipro 5.33%, Hero MotoCorp 3.75%, Sun Pharma 3.52%, Hindalco 3.38%, Sterlite Ind 2.91%, Bajaj Auto 2.88%, Cipla 2.80%, Jindal Steel 2.15%, HUL 1.70%, Coal India 1.59% and Maruti Suzuki 1.29%.
Among other sectoral indices, the BSE-Realty spurted by 7.33%, BSE-PSU 4.67%, BSE-Teck 2.82%, BSE-IT 2.45% and BSE-Power 1.75% while BSE-Auto dropped by 2.88%, BSE-Metal 1.44% and BSE-HC by 0.89%.
The total turnover at BSE and NSE was at Rs. 12,288.25 crs and Rs. 66,915.11 crs respectively as against the last week's level of Rs. 13,452.18 crs and Rs. 64,590.39 crs.
Forex: The Indian rupee extended its gains for the second week in a row and flared up by 105 paise to close the week at 2-1/2-month high of 53.71 against the Greenback on strong local equities triggered by delay in the implementation of controversial GAAR by the government and a fall in wholesale inflation for December boosted rate cut hopes.
Sustained dollar selling by exporters and some banks amid continued foreign funds inflow in local stocks also kept the rupee firm.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed the week a tad higher at 54.75 as against last weekend's close of 54.76, but touched a low of 54.88 at mid-week on fresh dollar demand from importers and some weakness in capital markets on Wednesday.
Later, it bounced back with a vengeance after the government allowed oil marketing companies (OMCs) to hike diesel price in small quantum periodically, which might help to recover their under recoveries and reduce the burden of fiscal deficit of the government.
The rupee then touched an intra-day high of 53.70 before concluding at 53.71 --highest closing since November 1, 2012, showing a rise of 105 paise, or 1.92%. Last week, it had risen by 31 paise, or 0.56%.
The Indian benchmark sensex closed the week sharply up by 375.40 points, or 1.91%, while FIIs injected USD 697.34 mln in the first four days of the week.
On Monday, the governent said that it has postponed implementation of controversial General Anti-Avoidance Rules (GAAR) by two years to April 1, 2016, which was aimed at checking tax avoidance by overseas investors, giving a big relief to these foreign investors.
Inflation based on wholesale prices (WPI) declined to 7.18% in December compared to 7.24% in November, which may prompt the Reserve Bank to cut key interest rates in its policy review on January 29.
Meanwhile, retail inflation rose to 10.56% in December from 9.90% in November.
Mr. Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "The INR started the week on a strengthening note, but pared gains for next two sessions. The pair then reversed the weakness into sharp gains towards the end of the week moving out of the last right weeks of consolidation. There has been lot of policy action from the government which represents to be landmark decisions supporting gains in domestic equity markets and INR."
"After the WPI hit a three year lows raising expectations of rate cut by the RBI, the government deferred GAAR till April 2016 for FII's and NRI's investing through FII's. The partial deregulation of diesel prices was the strongest trigger for the INR to strengthen by over 2% in just last two sessions, which will reduce the burden of fiscal deficit of the government," he added.
"The fiscal consolidation shall benefit the government in long run by better sovereign ratings lowering of public debt which is a positive sign for the economy and the markets. Strong support is placed at 53.50 mark whereas resistance is pegged at 54.30 levels," he further commented.
The RBI fixed the reference rate for US dollar and Euro at 53.9465 and 72.2050 from 54.5390 and 72.2945, respectively in the last weekend.
The rupee premium for the forward dollar ended mixed on alternate bouts of buying and selling.
The benchmark six-month forward dollar payable in June finished slightly lower at 163-165 paise from last weekend's level of 164-166 paise, while far-forward contract maturing in December ended higher at 321-1/2-323-1/2 paise from 314-316 paise last weekend.
The rupee recovered smartly against Pound Sterling to end the week at 85.63 from preceding weekend's level of 88.23 and also rebounded against the Euro to finish at 71.75 from last weekend's level of 72.61.
It too shot up further against the Japanese Yen to close at 59.81 per 100 Yen from 61.65 last weekend.