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MUMBAI: After being hammered for much of June, markets bounced back sharply on Friday as foreign investors turned buyers on positive Asian market cues and signs that stalled reforms are re-starting months after the government bit the bullet and decided to double gas prices from the next fiscal year.
However, FII advisors and market experts remained sceptical about the sustenance of Friday's Sensex rally of over 500 points, given the substantial weakening of the currency in recent times and the consequent sell-off by foreign investors, apart from a likely negative fallout from the government's move to raise gas prices.
After having pumped $15.35 billion into Indian shares in the year through May 31, FIIs, spooked by a weak rupee, have sold $1.8 bn so far this month.
"This is no more than a technical bounce-back, which has been helped by a much-awaited market-friendly measure (raising gas prices)," UR Bhat, director, Dalton Capital Advisors, an FII advisory company, said.
"It's one thing to say gas prices will be doubled, it's quite another to deal with the consequences of such a decision. An increase in gas prices would entail a rise in fertiliser and electricity charges. Has the government thought out whether the gas price increase can be passed on to farmers who buy fertiliser or can the defunct state electricity boards manage to raise electricity tariffs? I think markets will analyse the measure with a sieve and realise the decision may not have taken a holistic approach. Even if FIIs turn net buyers because of the global rally and this policy measure, I don't think these will signal a trend reversal until the rupee slide is stemmed and the government takes a more holistic approach while announcing policy decisions."
On Friday, though, the markets cheered as FIIs purchased shares worth Rs 1,124.31 crore on a net basis, which caused the Sensex to jump almost 520 points, or 2.75%, to 19395.81 points, its highest single-day rise since May 15, and the Nifty to post a 2.8% increase to 5842.2 points.
Among Asian peers, Indian indices' jump was second only to Nikkei's, which rose 3.5% after comments on Thursday by William Dudley, the powerful president of Federal Reserve Bank of New York, that the winding down of US stimulus depended on economic outlook and not calendar was interpreted by global stock markets to mean a delay in its scaling back.
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