Sensex, Nifty close at life-time highs

The Bombay Stock Exchange (BSE) benchmark 30-share sensitivity index, the Sensex crossed the psychological 20,000-mark for the second time on Tuesday, Dec. 11 and closed at a record high, riding on a flurry of buying by investors who were expecting a rate cut by the US Federal Reserve.

On Oct. 29, the benchmark index vaulted for the first time above 20,000 mark to an intra-day high of 20,024.87 before it ended up at a record high of 19,977.97.

Since then, it has taken 31 trading sessions for the index to breach and close above this mark.

On Tuesday, buoyed by positive cues from Asian markets, where stocks advanced in a range of 0.25 percent to 2.6 percent on the back of strong surge on Wall Street, triggered by expectations of a rate cut to be announced by the US Fed, the Sensex surged to an all time high of 20,333.06 points, before closing at 20,290.89, up 360.61 points or 1.81 percent. At its lowest, the index was at 20,019.34 points.

The broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) too rallied strongly for the day, closing at a new high at 6,097.25 after hitting a record high of 6,111.20 points and a low of 5960.40 points during trade. The previous highest was 5974.30 set on December 7.

The positive sentiment in the market will continue as there is an expectation of a further rate cut. Even the mutual funds have received a good flow of money, said Hemang Jani, senior vice-president, Sharekhan.

The overall mood is very positive; I expect the market to stay buoyant in the near term, said Motilal Oswal, chairman, Motilal Oswal Securities.

There is optimism all around. But, the optimism is also built into the stock prices. Financial intermediation space is looking very robust. We see significant growth opportunities in this segment, added Motilal Oswal Securities' managing director, Raamdeo Agrawal.

Markets may give 12-15 percent returns in the next 12 months, said Deepesh Pandey, deputy chief investment officer, Mirae Asset Management Company.

According to Andrew Holland, head of Strategic Risk Group at DSP Merrill Lynch in India, the nation's robust economy, growing at a pace of 9 percent, will continue to attract investors.

India is a strong economy and whatever (negative) happens globally is not really going to impact it, he said, noting the market had already factored in a quarter percentage point cut by the US Fed.

The surge in the markets came on anticipation that the US Federal Reserve would cut key rates by at least 25 basis points at its meeting on Tuesday evening, said Anil Advani, head-research, SBI Capital.

According to Sanjay Sinha, chief investment officer at SBI Mutual Fund, a global rally would follow the rate cut. November might have seen negative FII inflows, but once fresh allocations begin in January we should see positive flows, he said.

A half-percentage-point cut in US rates on Sept. 18 resulted in a massive inflow of foreign funds of over $7 billion that led to a rapid rise in stock prices. However, the overseas investors were net sellers of about $1.2 billion in November following a move by India's stock market regulator in tightening investment rules for unregistered foreigners by clamping down on issuance of indirect investment notes (promissory notes or p-notes).

Foreign funds have invested more than $16 billion in Indian equities so far in 2007.

However, not everyone is comfortable with the prospect of an interest rate cut by the US Fed. A rate cut by 50 basis points may be positive for the markets, but people seem to forget that it is an indication of the extent of trouble the US economy is likely to face, said Jayesh Shroff, fund manager at SBI Mutual Fund.

The prominent gainers in the Indian market on Tuesday were Reliance Industries (RIL), Grasim, HDFC, HDFC Bank, ICICI Bank, L&T, Maruti, ONGC, SBI, ACC, Bajaj Auto, Bharti Airtel, Tata Motors and Tata Steel.

Shares in index heavyweight RIL gained 2 percent to Rs.2,878.75, after a newspaper reported the company had signed a deal to buy 49 percent in eight exploration blocks of Uranium Exploration Australia. RIL stock has more than doubled since the start of 2007.

The share price in India's No.1 carmaker Maruti Suzuki India Ltd surged 3.2 percent to Rs.1,078.50 - the highest in six weeks - after majority shareholder Japan's Suzuki Motor Corp. announced it would build its new world car in India.

Bharti Airtel was up 5.83 percent, HDFC Bank 5.20 percent, Hindalco 3.73 percent and ONGC 3.64 percent.

Infosys (down 0.65 percent) and DLF (down 1.35 percent) were the major losers in the Sensex pack.

Ambuja Cement (down 0.60 percent), Reliance Energy (down 0.46 percent) and BHEL (down 0.17 percent) also ended in the red.

BSE Mid-Cap and Small-Cap indices also hit all-time highs.

Except the BSE-IT index, realty, metal, banking and PSU segments led the market rally.

Sectoral indices BSE-Realty and BSE-Bankex were the major gainers. The BSE-Realty index surged 359.44 points, or 3.04 percent, to close at 12,182.32 points followed by BSE-Bankex, which rose 292.16 points, or 2.54 percent, to close at 11,778.71 points.

The market breadth was overall positive as 1,973 gainers outpaced 899 losers on a total volume of nearly 685 million shares.

Similar market sentiments could be felt in South Asia as Karachi's 100-Share index ended 0.42 percent up at 14,633 points and Colombo's All-Share index gained 0.59 percent to 2,523.60.

On Tuesday, the US Federal Reserve cut its benchmark interest rate by a 25 basis points to 4.25 percent to ease the credit crunch and encourage public spending. The US Fed has cut the benchmark Fed funds rate - an overnight bank lending rate having a direct impact on consumer and home loans in the US - by 75 basis points since September 18 to prevent the world's largest economy from plunging into a recession.

The Indian market is sensitive to the decisions of the US policy makers as the US is India's biggest trading partner and a recession there will slow down India's export growth.