Buoyed by the diesel price hike and US Federal Reserve?s latest-asset purchase programme, Indian equity market clocked in highest gain for the year and closed at a new seven-month high.
The 30-share Sensex gained 443.11.points ? highest since July 2011 ? to close at 18,464.27, up nearly 2.5%. Even the 50-share Nifty rose 142.30 points or 2.6% and closed at 5,577.65. For the week, both the indices have added nearly 4.5%, highest since the second week of June.
Meanwhile, the MSCI Asia Pacific Index surged 2.4% while futures on the Standard & Poor?s 500 Index gained 0.5%, hinting at a further rise in US markets. In Asia, the Hang Seng gained nearly 600 points or 2.90% while the Kospi and Taiwan Weighted both surged nearly 3%.
The announcement of QE3 pushed the Dow Jones and S&P 500 to their highest levels since December 2007 and the Nasdaq to its highest close since November 2000. The S&P 500 is about 7% away from reaching its record closing high after rallying 16% this year amid expectations central banks will take steps to stimulate the economy.
The Fed?s move followed European Central Bank president Mario Draghi?s earlier statement that the bank has agreed to an unlimited bond-purchase programme.
Market experts termed the rally as a reaction of the ?dual positives?. According to them, the diesel price hike was a much-needed step in a right direction, which gave the market an indication of the government?s seriousness towards fiscal consolidation. ?Even if the price hike was expected for quite some time, the market rewarded the government?s decision to finally take this bold move. Traders turned hopeful of further policy actions as the policymakers were expected to clear FDI in aviation and retail on Friday,? said B Gopkumar, EVP & Head of broking at Kotak Securities
On Thursday, the government increased the diesel price including the excise duty by R5 per litre and capped the number of subsidised PLG cylinders per household to six per annum.
Later, in the US trading hours, the US Fed said it will launch a fresh round of bond-buying to stimulate the economy, purchasing $40 billion of mortgage debt each month until the outlook for jobs improves substantially.
According to Andrew Holland, CEO of Investment Advisory, Ambit Capital, the government finally appears to be walking the talk which has raised optimism among traders of further policy actions.
?However, it would be important to see how the opposition and alliance parties react to the fuel price hike over the week-end,? said Holland.
He also remarked that while a combination of liquidity measures have fuelled a market rally, it would be crucial to see the impact of such monetary easing on commodity prices, especially crude oil prices that can continue to affect India?s current account deficit.
Latest data on inflation showed that the WPI rose 7.55% in August from a year earlier, higher than consensus estimates and above RBI?s comfort zone. Meanwhile, the market gains were lead by interest rate sensitive sectors including banks and real estate companies, ahead of Monday?s monetary policy meet. State-owned oil companies had shed their early gains to end the Thursday?s session in red.
