Indian shares stage sharp rally on pension funds boost

Monday, 31 January 2005, 08:00 Hrs
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MUMBAI: India's key share market index rose as much as 1.5 percent in early trade Monday with investors' sentiment getting a major boost from the decision to allow private pension funds to invest in stocks.

The stock market opened for the day on a positive note after rallying nearly three percent in the previous session as institutional investors rushed into the trading ring to pick up heavyweight equities.

At noon, the stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex was trading at 6,537.87, representing a gain of 118.78 points or 1.97 percent over its previous session's close.

Analysts say the bull-run on the bourses has been triggered by the government decision to allow private pension funds to invest a part of their portfolios in stocks of domestic companies.

The move, a major step towards reforming the country's financial sector, is likely to improve liquidity in the stock market and reduce dependence on foreign institutional investors.

"The fresh institutional buying interest in the markets today is completely on expected lines. The decision has greatly boosted investors' mood," said Deepak Shah, a senior analyst with brokerage firm Pranav Securities.

"Investors hope with the stock market doors now being opened for private pension funds, liquidity on the bourses will definitely improve. This, in turn, will reduce sharp volatility in share prices," Shah told IANS.

Experts say the entry of pension funds into stocks will also enthuse scores of retail investors to park a part of their savings in share markets. This, in turn, is expected to fuel demand for quality equities in the days ahead.

The government said Friday that it would allow private pension funds to invest up to five percent of their portfolios in shares.

While the private pension fund assets are estimated at around 1.3 trillion in India, the latest decision is expected to see an inflow of 200 billion into the domestic stock market.

Experts say increased liquidity on the bourses will also reduce the "over-dependence" on foreign institutional investors (FIIs) to take the market to higher levels with sustained inflows of funds.

FIIs - termed as the backbone of India's liquidity-hungry equity market - invested a record $8.5 billion in the domestic market in the last calendar year.

The sharply higher overseas fund inflows propelled the benchmark share market index to its all-time high in December.

Selling pressure by foreign funds, on the other hand, saw blue-chip equities turning highly volatile earlier this month.

Overseas equity investors have pumped in a meagre $42.50 million in India in the current month so far, as compared to a whopping investment of $1.47 billion in December last year.

The major gainers in early trade Monday include ICICI Bank, Reliance Industries, public sector energy giant Oil and Natural Gas Corp, and automobile major Tata Motors.

Source: IANS
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