Indian markets toast poll verdict as surge halts trading (Roundup)

May 18th, 2009 - 5:32 pm ICT by IANS  

Sensex Mumbai, May 18 (IANS) Indian equities markets Monday gave a resounding welcome to the electoral victory of the Congress-led alliance as investor frenzy forced the suspension of trading for the day after indices hit upper circuit filters twice within seconds.
If the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) rose an unprecedented 2,099.21 points, or 17.24 percent, the broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) did even better, gaining 636.4 points, or 17.33 percent.

In fact, this was for the first time trading was suspended for the day at both the bourses as their key indices hit the upper circuit - an in-built mechanism to curb excessive volatility.

In the past trading has, indeed, been suspended for the day, but the reasons were just the opposite - the key indices, then, had hit the lower circuit filter.

“There was a bit of an euphoria,” said Abizer Diwanji, the head of financial services at global consulting and audit firm KPMG. “The markets factored in two aspects - stability of the government and widespread reforms it is expected to drive,” Diwanji told IANS.

“There was a psychological reaction to the poll results. A lot of people were also short on their positions that were being covered,” added Avinash Gupta, assistant vice president with leading brokerage Bonanza.

At the opening bell Monday, the 30-share sensitive index (Sensex) of the BSE stood at 13,479.39 points, with a gain of 1,305.97 points, or 10.72 percent, over the previous close.

It then immediately shot up further, with the gain amounting to 14.7 percent over the previous close, hitting the upper circuit filter of 13,963.3 points. Trading at that point was suspended by two hours till 11:55 a.m.

But when trading resumed, it took all of a second for the investor frenzy to once again lift the index to the next level of circuit filter, triggering an automatic suspension of trading for the day.

This was the first trading day following the announcement of election results Saturday, after the April-May polling that has handed a dramatic electoral victory to the Congress party-led United Progressive Alliance (UPA) government.

“This should be a big bang for the market,” said the Citigroup in the country strategy for India. The financial powerhouse expected the Sensex to easily hold ground above the 13,500-point mark in the near term.

Over the past month, the Sensex has gained 29.48 percent, or 3,249.54 points, of which more than 2,000 points was added Monday.

The S&P CNX Nifty mirrored the movement of the Sensex and surged 14.48 percent on opening, and hit the upper circuit at 4,203.3 points, leading to a halt in trading.

Once trading resumed at 11:55 a.m, the frenzy continued. The index breached the upper circuit and trading had to be suspended for the day.

The Nifty, which opened at 3,673.15 points, rose 17.33 percent, or 636.4 points, to close at 4,308.05 points. It had closed Friday at 3,671.65 points. Only 842 stocks were traded on the BSE, while 207 scrips changed hands on the NSE.

Data with the BSE further revealed that all 13-sector-specific indices ended in the green, led by 23.45 percent jump for the realty index, 21.9 percent jump for capital goods and 19.18 percent for banking.

The case was similar for the 30-share Sensex, where Bharat Heavy Electricals zoomed a whopping 32.72 percent, Larsen and Toubro rose by 29.53 percent and DLF shot up by 25.9 percent.

The lowest gain, in fact, was for Oil and Natural Gas Corp, but even that rise was in double digits at 13.17 percent, with Tata Power just ahead with an upswing of 13.38 percent.

Looking ahead, analysts like Diwanji and Gupta expected the markets undergo a correction and focus more on the fundamentals and the issues on the ground, instead of persisting with the euphoria that was witnessed Monday.

“There has to be a consolidation phase. A key trigger will be government formation and the agenda that is set by the new government. In the short term, this will have a bearing on which way the markets move,” said Gupta.

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