Of late, there is a buoyancy in the capital market. As on 12.24 Pm today, BSE index has peaked to 27,886, up 26 points and NSE index perked to 8333 up 9 points. The stocks which have shown solid performance are banking, capital goods, healthcare and realty sectors. However, oil and gas & power sector scrips have shown weakness. A detailed update will be made available only later and the factors which have pushed up and pulled down the sectors.
Notwithstanding that, a few factors have to be taken into cognizance for the upward rally of the Sensex. Foremost, is the cut in the oil prices (both petrol and diesel) in the recent days riding on the back of slide down in the global prices. It is expected that the prices will slide further or at least become stable in the next few days, giving the hope that the fuel cost across the industry will come down by a good margin. The only rider is that the OPEC will not resort to any cut in production. Pundits say that it is quite unlikely given the complex nature of oil politics.
Secondly, the credit off take of the industry has increased in the recent days. Bank credit to industry, as per the recent data released by RBI, has improved to 11% as on October 17,2014, though it continues to under perform the growth in deposits, which has grown by 12.6%. Some two weeks back, bank credit growth was 9.7 % and deposits growth was 13.4%.
Taking cue from this higher off take of credit by the industry, leading public sector banks have reduced the deposit rates by 100 basis points in a staggered manner. The SBI, ICICI Bank and Central Bank of India had reduced rates earlier this month and now Bank of India, Bank of Baroda and Andhra Bank followed the suit. Also, the banks expect clear signals from RBI to lower lending rates in December 2014 policy review.
Significantly, there is a lot of positive vibes in industry with the installation of a majority government at the Center and stable governments at the Sates. A slew of reform measures have already announced and a few are expected any time from now. The news that the Congress party, the main opposition, will support certain decisions like coal bloc auctioning, insurance reforms etc. have sent the right signals to the stock market.
Media reports also must have contributed substantially to the spiraling stock indices. A lot of report about mergers and acquisitions across the spectrum of industry, the statement of intent of healthcare companies to focus more on India against the backdrop of Clean India, India focused roll out plans of the tech companies like Google, Microsoft etc would have boosted up the market.
Sensex is driven by sentiments. One can create a situation by orchestrating growth sentiments. But after a time, people will look at the ground level performance to assess the quality of governance. We can discount that reality at our own peril only.
For More details: Business Economics & Services Team (BEST) E Mail: jthac1234@gmail.com,jthac1234@yahoo.com
