Indian Stocks Soar

Indian Stocks Soar After Congress-Led Election Victory

V. PHANI KUMAR SUBHADIP SIRCAR ROSALIND MATHIESON

Indian stock benchmarks surged more than 17% Monday as investors cheered a decisive election victory by the Congress Party-led coalition, with trading halted and then suspended for the day as the deluge of buy orders trigged market circuit-breakers.

Other stock markets in the region ended mixed, in part because India's surge helped turn around sentiment; markets that closed earlier such as Japan ended in the red, while later exchanges like China ended higher.

"The election in India is showing a clear mandate there, and probably underlines to a lot of investors there that Asia is going to be the growth area for the next six to nine months, whereas growth in Europe and U.S. could take much longer," said Andrew Sullivan, a trader at Main First Securities in Hong Kong.

Reuters

India's benchmark share index is displayed on the facade of the Bombay Stock Exchange building in Mumbai May 18, 2009.

Minutes after the opening, the the 30-stock Sensitive Index, or Sensex, rose 10.7% while the National Stock Exchange Nifty rose 14.5%, triggering a two-hour trading suspension. Immediately at the resumption of trade, they surged further, prompting a trading suspension for the rest of the day. The Sensex closed 17.3% higher at 14284.21, while the 50-stock S&P CNX Nifty rallied 17.7% to 4323.15.

"A pro-reform/stable government is just what India needs, amid signs of economic expectations bottoming out, to inspire investor confidence. We have argued that the stability of the newly-elected government, rather than the coalition dynamics, would be crucial for" sentiment, said analysts at Standard Chartered.

Some participants and analysts were disappointed. Sharmila Joshi, an investment adviser in Mumbai, said "I have never seen anything like this… These kind of gap-up openings are ultimately bad for the market, as they don't give one a chance to participate. Today, it was impossible to participate."

Among the big gainers, shares of market heavyweight Reliance Industries climbed 20.6% and ICICI Bank advanced 25.4%, while property major DLF gained 25.9%.

The local currency also surged, with the U.S. dollar recently down to 47.96 rupees from a previous close of 49.38 rupees.

Morgan Stanley raised its earnings estimate and Sensex targets after the poll outcome. Analysts there said they now expect the Sensex companies to post aggregate earnings growth of 2.5% this fiscal year, compared with a prior forecast of a 10% contraction. It raised its Sensex target for 2009 to 15,300.

Saturday, the Congress-led United Progressive Alliance secured 262 seats out of the 543 up for grabs, falling just short of the 272 majority mark but expected to muster that with support from smaller parties and independents. The outcome beat the most optimistic exit polls.

Markets elsewhere in Asia ended mixed, with Japan's Nikkei 225 losing 2.4% following a weak finish on Wall Street Friday. The market was also pressured by sharp early gains for the yen -- whose strength makes Japan's exports less competitive -- although the currency retreated in the afternoon.

Australia's S&P/ASX 200 ended down 1%, South Korea's Kospi fell 0.4% and New Zealand's NZX 50 lost 0.5%

"The stock market is expected to trade in a range until investors confirm whether upcoming U.S. housing and economic data are strong enough to renew expectations for an economic recovery," said Won Jong-hyuck, at SK Securities in South Korea.

But Hong Kong's Hang Seng Index reversed early losses to end up 1.4% at 17,022.91, China's Shanghai Composite added 0.3%, Taiwan's Taiex rose 1.4% and Singapore's Straits Times had gained 1.5% in late trading.

Dow Jones Industrial Average futures were recently down nine points in screen trade, coming off early lows.

"There was quite a bit of shorting early on. What essentially happened is that combined with the positive news out of India, people turned more bullish. And then in the afternoon, a lot of people who put shorts in the morning were covering them," said Main First Securities' Mr. Sullivan.

There were some jitters in Japan due to news that confirmed swine flu cases increased to 93 over the weekend, with most of the infections reported among high school and college students in and around the western cities of Kobe and Osaka. All Nippon Airways Co. shares dropped 2.7%, while drug company Daiichi Sankyo Co. advanced 2.3%.

Investors in Japan were still focused on the earnings season, with Panasonic extending losses to end 7.6% lower. The drop came after it Friday reported its second biggest annual loss. The stronger yen was also taking a toll on exporters, with Sony 5.8% lower.

The rebound in Hong Kong was led by property shares which tracked the advance in Shanghai, where investors are hopeful of economic recovery. Cheung Kong (Holdings) added 2%, while Henderson Land Development Co. gained 3.5%.

Westpac shares were down 1.9% in Sydney as investors dropped the stock after qualifying to collect its latest dividend.

Justin Gallagher, RBS head of Sydney trading, said Australian shares were expected to fall further in the near term. "I think people have a lot less cash to put to work after all these capital raisings. Capital raisings are still being digested," he said.

Taiwan shares gained after the Xinhua News Agency reported over the weekend that China would soon organize major enterprises to visit Taiwan to explore investment opportunities, including those in public infrastructure, with construction and transportation stocks leading gains.

In currency markets, the U.S. dollar recently bought ¥95.41, after dipping to ¥94.57 earlier in the day. It was buying ¥95.10 in New York on Friday. The euro was recently at ¥128.45 from ¥128.28 on Friday and off the day's low at ¥126.99. The euro was also buying $1.3454, compared with $1.3488.

Spot gold was down $1 from New York levels Friday, at $929.90 a troy ounce. Front-month Nymex crude oil futures were up 66 cents at $57 a barrel on the Globex electronic platform, after falling $2.28 in New York.