June 5, 2014 1:21 pm

Indian stocks close at fresh record high

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Indian stocks closed at a new record high on Thursday, underscoring expectations of an economic renaissance for Asia’s third-largest economy under recently elected Prime Minister Narendra Modi.

The benchmark BSE Sensex closed up 1 per cent to 25,019 in Mumbai, the first time that the index of 30 leading companies has crossed the 25,000 level. Mr Modi was sworn in as leader in mid-May.

India’s markets have rallied strongly over the past three months, jumping 18 per cent and raising hopes of a sustained bull market if the new administration introduces sweeping economic reforms to revive the country’s flagging economy.

Thursday’s record was propelled by gains for companies in cyclical sectors such as power and capital goods that are likely to benefit from a return to higher growth, such as billionaire Anil Ambani’s Reliance Infrastructure, which rose 6 per cent.

State-backed oil groups also rose on hopes that Mr Modi would continue to trim consumer fuel subsidies in the run-up to his first budget next month.

Bharat Petroleum Corporation jumped 7 per cent, continuing a trend that has seen strong recent gains by public sector oil groups with shares in Hindustan Petroleum increasing by 86 per cent since the start of this year.

India’s bullish markets have been buoyed by an influx of funds from foreign investors with $5.7bn coming into debt and equities during May, the highest monthly inflow this year.

Economic optimism was also buttressed by the Reserve Bank of India’s decision to hold interest rates steady this week, alongside marginal improvements in some underlying economic data.

On Wednesday, HSBC’s monthly survey of services activity showed its first expansion in close to a year during May, although quarterly gross domestic product figures on June 1 showed growth unchanged at 4.6 per cent year-on-year in the fourth quarter.

Motilal Oswal, founder of Mumbai-based brokerage Motilal Oswal, said he expected the rally to continue with the Sensex potentially reaching as high as 30,000 in the run-up to July’s budget.

“I expect the markets to touch newer heights,” he said. “In my view, the next few years would be very bullish for equity investors.”

Other analysts have sounded a more cautious note, however, emphasising the scale of the challenge facing India’s incoming administration as it attempts to tackle thorny issues of high inflation, poor infrastructure and elevated corporate debt.

As well as flat GDP data, the recently concluded earnings season for the fourth quarter showed corporate profits holding steady at best, following many quarters of weak bottom-line growth for leading companies.

Sanjeev Prasad, head of research at broker Kotak in Mumbai, also recommended selling stocks in sectors that had seen especially strong run-ups in recent months, such as metals and mining.

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