Stocks in India reach new heights on high expectations for budget reforms
July 3, 2014, 12:05 am TWN
MUMBAI--Indian stocks surged to a record high Wednesday on hopes that the newly elected government will announce reforms to revive the economy in its first budget next week.
The Bombay Stock Exchange climbed 1.07 percent to 25,789.42 in morning trade, touching a second record high 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 the worst slowdown since 1985 as it is hit by high inflation, low job creation and acute power shortages.
But the Sensex has soared nearly 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 country's deficit.
But 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.
Finance Minister Arun Jaitley has suggested the administration will avoid populist measures favored by the previous Congress-led coalition.
“If you indulge in mindless populism you burden the exchequer... you convert yourself into a high taxation society. It does not work,” he said Tuesday, according to the Press Trust of India news agency.
Jaitley, who will present the budget on Thursday, added that “bold decision-making is now possible.”