Investors on Friday cheered the government’s big-bang reforms, particularly foreign direct investment (FDI) in retail, sending the benchmark Sensex up by 517 points intra-day, a new 14-month high.
Samajwadi Party’s reassurance to the government of its support on a day that Trinamool Congress pulled out of the UPA coalition also aided the rally.
The index finally closed up 2.2%, or 403.6 points, at 18,752.2, its highest in the last 18-months.
The Nifty also gained 2.5%, or 136.9 points, to touch 5,691.2.
The government on Friday announced a fresh set of reform measures including reduction in taxes on overseas borrowings by Indian companies to 5% from the current 20% and approval of the Rajiv Gandhi Equity Scheme to attract more investment and suppress demand for gold.
Financial companies with insurance units such as Reliance Capital surged on hopes of more foreign direct investment, while lenders such as State Bank of India gained on hopes that additional measures would increase the prospect of interest rate cuts from the Reserve Bank of India.
The Indian market has outperformed all other major bourses globally in the current week, said analysts. The Sensex has gained 21.3% in the current year till Friday, outperforming all major Asian equity markets.
“The government reduced the withholding tax on overseas borrowing and cleared the Rajiv Gandhi Equity scheme,” said Dipen Shah, head, private client group, research, Kotak Securities. “Concerns about stability of the UPA government were also largely addressed.”
The finance minister on Friday indicated that a National Investment Board will be set up to reduce the time taken to approve large projects. This could address concerns relating to delays in implementation of projects. More investment could come in the capital markets with the government introducing further reforms, said industry experts. "On every opportunity we will keep reducing the defensive posture of our portfolio," said Paras Adenwala, managing director, Capital Portfolio Advisors. "We will be adding growth stocks on every opportunity."
Meanwhile, the rupee also appreciated on expectation of further equity inflows from foreign institutional investors. The Indian currency gained 93 paise, its four-month high, against the dollar and ended at Rs. 53.5 against its Thursday close of Rs. 54.4.