MKT CATCHES GLOBAL FEVER, JUMPS 732 PTS

12K: NO BULL, IT'S FOR REAL

The buzz was back on Dalal Street as FIIs pumped in Rs 1,417 crore to help Sensex notch up its biggest single-day gain in six months. All eyes are now on the grand finale of India's biggest reality show — the general elections — on May 16

INDIAN shares surfed the wave of bullishness in global equity markets to post their biggest single-day gain in six months on Monday despite some concerns that hopes for a speedy economic recovery may be just frothy optimism.
    The 30-share Sensex index of the Bombay Stock Exchange (BSE) rose by 6.4%, or 731.5 points, to close at a seven-month high of 12134.75, with foreign institutional investors largely responsible for the spectacular surge in stock prices. Shares from the metal, banking and IT sectors were the best performers, with the sectoral indices gaining 8-9%.
    "This is purely a global rally, but I am not too worried about valuations (in India)," said Edelweiss Capital chairman Rashesh Shah.
    The Nifty closed at 3654, rising 5.2%, as foreign investors bought
shares worth Rs 1,417 crore, according to provisional data.
    The positive mood in global markets was enhanced on Monday by data showing that China's manufacturing rose for the first time in nine months. Key markets in Asia rose between 3% and 6% while those in Europe gained 1-4%. The Dow Jones Industrial Average in New York had gained over 2% in early trading.
    The popular belief is that a recovery in China will help pull the global economy out of recession by creating demand. The CLSA China Purchasing Managers' Index for April gained on a mix of a slower rate of decline in export orders and government stimulus spending of 4 trillion yuan.
    "The extreme chaos of 2008 seems to be behind us. Till last month, players were comfortable with the price, but were wondering if it was the right time to buy. Now, the consensus seems to be that it is indeed the right time," Mr Shah said.
    Foreign investors have kept up their pace of purchases of Indian shares, but a May 1 report by Citigroup Global Markets says Hong Kong and China are the more favoured destinations in Asia.
    Jayesh Gandhi, executive director of Morgan Stanley Asset Management, was of the view that a "substantial part of the rally had to do with an impending economic recovery, the rest may be due to liquidity." "Economic parameters would increasingly get better hereon," he added.
    But many economists and market analysts have warned that the surge in stock prices globally and in India could be a short-lived reaction to the fiscal packages announced by governments. There are also murmurs that some of the unaccounted money parked in Swiss banks by Indian entities could be returning home, fearing tighter banking regulations in future.
    "A decent chunk of overseas money that has flowed into equities over the past few weeks has been coming through the Pnote (participatory note) route, and there is reason to believe that a good portion of this could be unaccounted money finding its way back into country," said a dealer at an institutional brokerage, who did not want to be named.
    Investors, who do not want to take exposure to India directly, invest through registered foreign institutional investors, which invest on their behalf and issue them P-notes, as shares cannot be held by unregistered portfolio investors. The Securities and Exchange Board of India (Sebi) had put curbs on Pnotes in 2007, but revoked it last year, hoping to attract more capital flows.
    The immediate trigger for Indian shares will be the announcement of the general election results on May 16. Just a few weeks ago, most players were of the view that concerns of a hung Parliament may slow down the rally. That has not happened, leading many to believe that the election results may not matter after all.
    "The market had priced in too much pessimism over the poll results," said Rakesh Jhunjhunwala, one of India's biggest individual investors.

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