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The Sensex gained almost 1,000 points last week. Experts expect the rally to sustain. Here are five reasons why stock prices are defying gravity:
• Investors, led by FIIs, are expecting Narendra Modi to lead the NDA to victory in the coming Lok Sabha elections. Such a government is expected to be more business-friendly than the current administration.
• Indian economy seen to have bottomed out. Investors expect growth rates to pick up in 2014-15.
• Indian growth rates, though at a decadal low, are still higher than all other large economies barring China. Hence, India offers FIIs a relatively better investment opportunity than other markets.
• By bringing CAD and fiscal deficit numbers umder control, finance minister P Chidambaram has signalled that he will not allow poll season populism to override hardnosed economic decision making. This is giving investors confidence to bet on India.
• Since 1991, the Sensex has always risen sharply in the run-up to the general elections. That trend is holding this time as well.