Markets surge on fuel hike, Fed action

Benchmark share indices ended up 2.5 per cent on Friday and the rupee appreciated sharply, shrugging off higher-than-expected August inflation, after the government's bold move to increase diesel prices and the US Fed's announcement of a third round of quantitative easing sparked off a rally in global stocks.

The 30-share Sensex ended up 443 points or 2.5 per cent at 18,464 and the 50-share Nifty ended up 142 points or 2.5 per cent at 5,578 near seven-month closing highs. On February 21, 2012, the Sensex had ended at 18,429 and the Nifty ended at 5,607.

"If we draw a downward trending trend-line joining the tops from November 2010 when Nifty registered a record high of 6,335, that trend-line has been broken today. This indicates that now the bulls have the upper hand. The rally can carry on and the Nifty can go up to 5,750 levels in the near term," said Salil Sharma, Technical Analyst, Partner, kapursharma.com.

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In the second major oil sector reform after petrol decontrol of June 2010, the government late Thursday capped subsidised domestic liquefied petroleum gas (LPG) for a consumer to six per year.

For a consumer using 12 LPG cylinders annually, the extra outgo on six additional cylinders at current market price will be Rs 2,106. Also, the diesel price was increased by Rs 5 a litre, while the excise duty on petrol was reduced by Rs 5.30 a litre to avoid a price increase.

The rupee continues to trade near two-and-half-month high at 54.70/71, versus its previous close of 55.43/44. The diesel price increase, though inflationary, would help shrink the government's fiscal deficit burden and attract foreign fund inflows into the country, traders say.

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On the economic front, India's headline inflation rose to 7.55 per cent in August as prices of potato, wheat and pulses as well as manufactured items soared. Inflation, as measured by the Wholesale Price Index (WPI), was 6.87 per cent in July.

In the global markets, Japan's Nikkei average climbed 1.8 percent on Friday to its highest level in three weeks, gaining a foothold above 9,000 after the US Fed's decision boosted sentiment for cyclical stocks.

All Asian indices ended in the green led by Hang Seng and Kospi both up over 2.9 per cent each. The Nikkei ended up 1.8 per cent, Shanghai Composite rose 0.6 per cent and the Straits Times ended up 1.3 per cent.

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All European share indices were also trading in the green bolstered by the US Fed's third round of quantitative easing. Among the major indices, the DAX and FTSE-100 were both up 1.4 per cent each while CAC-40 was up 2 per cent.

The sectoral indices on the BSE were led by rate sensitive shares on hopes that the central bank may ease key policy rates at its meeting on Monday. Realty, Metal and Bankex were up over 4 per cent each followed by capital goods, auto, oil and gas.

Index heavyweight Reliance Industries ended up 5.3 per cent at Rs 841. The financial space was led by SBI which surged over 5.5 per cent followed by ICICI Bank, HDFC Bank and HDFC.

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In the auto segment Tata Motors and Maruti Suzuki gained over 4 per cent each while Bajaj Auto and Hero MotoCorp rose 2 per cent each. In the realty segment, DLF surged 7.5 per cent while Unitech gained 5.4 per cent.

Metal shares were also among the top gainers with Tata Steel, Jindal Steel, Sterlite Ind and Hindalco zooming between 4.3-8.8 per cent each.

However, shares in the defensive sectors such as healthcare and cosumer goods ended lower as investors bet the Fed's new asset purchase programme will favour cyclicals and high beta stocks. Dr Reddy's Labs, Cipla, ITC were among the losers on the BSE.

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Among other shares, Essar Oil ended higher by 7.5 per cent at Rs 52 after the Supreme Court directed the company to pay the balance sale tax dues in installments spread over two years.

The BSE Mid-cap and Small-cap indices ended marginally higher as investors shifted focus to index heavyweights.

The market breadth was in favour of advances with 1,497 gainers and 1,420 losers on BSE.