Indian shares surge

Indian stock indexes rose over 2 percent on Friday to their highest since July 2011 after the government announced new measures on overseas borrowing, bolstering confidence about its resolve to continue undertaking long-awaited reforms. Finance Minister P. Chidambaram said on Friday India would slash a tax on overseas borrowing by local companies and implement a scheme to attract retail investors into stocks, following up on the government's recent big ticket reforms.
The announcement boosted infrastructure stocks such as Larsen & Toubro, which are expected to especially benefit from easier access to overseas funding markets. Financial companies with insurance units such as Reliance Capital surged on hopes foreign direct investment limits would be increased, while lenders such as State Bank of India gained on hopes additional measures would increase the prospect of interest rate cuts from the central bank. "Government after a long time is doing what it should do, and if reforms continue then market would be in a different orbit soon," said Paras Adenwala, MD & Principal Portfolio Manager at Capital Portfolio Advisors
"On every opportunity we will keep reducing the defensive posture of our portfolio. We will be adding growth stocks on every opportunity," he said. India's benchmark BSE index rose 2.2 percent, or 403.58 points, to 18,752.83 points, marking its highest close since July 25, 2011. The index, also known as the SENSEX, gained 1.6 percent for the week. The 50-share NSE index gained 2.46 percent, or 136.90 points, to 5,691.15 points and added 2 percent for the week.
Investors are growing hopeful the government will remain committed to a slew big ticket reforms announced since last week, even after key ally Trinamool Congress withdrew its support to the ruling coalition over some of the measures. Helping improve sentiment was the expression of support by Samajwadi Party chief Mulayam Singh Yadav, who said to local news channels on Friday his regional party would continue its outside support for the government.
Infrastructure and capital good stocks were among the leading gainers after Chidambaram said the government would slash a tax on overseas borrowing by local companies to 5 percent from 20 percent. Larsen & Toubro rose 4.2 percent, while Bharat Heavy Electricals surged 7.5 percent. Reliance Capital surged 10.3 percent on hopes the government will next consider increasing the foreign direct investment limit in the insurance sector to 49 percent from 26 percent. Other financial companies with insurance units also gained, with Bajaj Finserve up 2.3 percent.
Banks gained as additional reform measures are seen increasing the chances the Reserve Bank of India would cut interest rates given the government's fiscal action has been seen as a key prerequisite. State Bank of India rose 4.23 percent, while ICICI Bank gained 4.2 percent. Among other gainers, Reliance Communications Ltd surged 8 percent after it raised call prices by a quarter in four service zones and will extend the hike to all zones in the next 30 days.
Other telecom carriers rallied as well on hopes they will also increase prices. Bharti Airtel rose 4.1 percent. Not all shares gained. Infosys fell 0.9 percent, while Tata Consultancy Services fell 1.4 percent, after the rupee has strengthened in recent sessions, raising worries about the impact on their overseas profits.