Indian stocks hit new high on hopes of new budget

July 03, 2014 - 12:05:36 am

MUMBAI: Indian stocks ended at a record high yesterday on hopes the newly elected government will announce reforms to revive the economy in its first budget next week.

The Bombay Stock Exchange climbed as much as 1.36 percent to 25,864.53 points before retreating marginally to end at 25,841.21 points, its highest-ever closing level.

Yesterday’s surge was the second record high touched by the Sensex in less than a month.

“This is primarily a budget expectation rally. People are hoping to see some real policy reforms in infrastructure, power and taxation,” said Vikram Dhawan, director of equities at brokerage Equentis Capital.

India’s economy grew 4.7 percent last year, the second consecutive year it has come in below five percent, with the country enduring its worst slowdown since 1985 as it is hit by high inflation, low job creation and acute power shortages.

But the Sensex has soared more than 22 percent this year, making it one of the best performers in the region, largely thanks to the rise of Prime Minister Narendra Modi, whose right-leaning Bharatiya Janata Party won a landslide victory in May’s general election. 

Modi’s government has already partially raised railway fares, automobile fuel costs and cooking gas prices to try to reduce the deficit.

These steps by the Modi government “signal a strong intention to pursue reforms”, said Fitch Ratings in a note this week, raising its growth forecast to 5.5 percent for the current financial year. A further uptick in stocks may now depend on how the government tackles soaring food inflation spurred by a shortfall in annual rains, analysts say.

India is one of the world’s top producers of rice, wheat and sugar. It relies heavily on the southwest monsoon, which sweeps the subcontinent from June to September, to water its crops.