Sensex hits fresh highs after IMF said India to overtake China as world’s fastest-growing economy

MUMBAI: Stocks rose to yet another record on Tuesday after the International Monetary Fund said India would overtake China as the world’s fastest-growing economy in the year to March 2017, which will mark a historic switching of roles if the projection made in the World Economic Outlook comes to pass.

The BSE Sensex surged as much as 1.96%, or 567 points, intraday to hit a high of 28,829.29, while the Nifty touched the milestone level of 8,700. The Sensex closed at 28,784.67 points, up 1.85%, and the NSE Nifty ended 1.7% up at 8,695.6.

As China has lost steam with loans going bad and getting punished for profligacy during the financial crisis amid a slump in investment, so has India been regarded with greater approbation ever since Narendra Modi led BJP to victory on the promise of policy changes, economic revival and job creation. China said on Tuesday it grew at 7.4% last year, the slowest in 24 years.

Meanwhile, since May, India has rolled out reforms and sought to boost investor sentiment.
The response to that and various other global triggers has not been smooth or linear since the beginning of the year though.

While the Sensex has risen about 1,285 points or 4.7% since January 1, foreign institutional investors (FIIs) have actually been net sellers of Indian equities to the tune of 100 crore. It's only been in the last three days that theyfve rushed back in, pumping about 2,913 crore into stocks. The slide in prices of oil and other commodities has also helped.

"The good news is that when the world is slowing down, India is coming out of a growth slump,h said Rashesh Shah, chairman, Edelweiss Group. I think from here onwards, India's growth will accelerate as lower oil price solves lot of problems for India in terms of lower inflation, fiscal deficit, rupee and current account deficit."

The government is looking to revive the economy that hit decadal lows in the past two fiscal years. With the World Bank having also said last week that India will overtake China - in calendar 2017 - overseas portfolio investors to domestic fund managers have all turned their focus on India ahead of the European Central Bank meeting on Thursday, when it's expected by many to embark on a round of quantitative easing.

Other calendar items under scrutiny are the visit of President Barack Obama to India later this week and the union budget at the end of next month. But while FIIs have started preferring India stocks among those of emerging markets, domestic investors are feeling crowded out, underweight as they are on equity as an asset class.

The IMF said India's gross domestic product is likely to grow at 6.3%, marginally down from 6.4% projected in October, in the next fiscal year and 6.5% in year to March 2017, which will be the third year of the Modi government. The World Bank projected India to edge past China in calendar 2017, clocking 7% growth compared with China's 6.9%, it said on January 13.

Equity investors are gaining confidence that worries over inflation are receding and growth could gain momentum, said market experts. This assurance has been underscored by Reserve Bank of India governor Raghuram Rajan making a surprise reduction in the policy rate last week.

"The rally is an extension of last week's euphoria of interest rate cut,h said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. There is a realisation that the real impact of crude fall will come into effect from next quarter and will be favourable for India."

Investors would be advised to proceed with caution, according to those who follow technical charts. These seem to show that market is approaching an overbought zone.