BSE Sensex hits 32-month high

Liquidity, the prime driver

The BSE Sensex rose the most in 3-1/2 months and scaled new 32-month high on Monday, as investors cheered robust July factory output, with strong world markets also boosting sentiment.

Banks topped the gainers with top lender SBI and HDFC Bank hitting an all-time high in expectations demand for loans would rise on the back of strong economic growth in Asia's third-largest economy.

Data released last Friday showed July industrial output accelerated 13.8 percent on surging capital goods production, strengthening the case for monetary tightening by the central bank to tame near double-digit inflation.

The markets were closed for Ramadan on Friday.

The 30-share BSE index rose for the fifth straight session and climbed 2.17 percent or 408.67 points to 19,208.33, with 26 of its components advancing. It rose to as much as 19,243.44 points, its highest since January 2008.

"We are bullish on the market from a long-term perspective. But in the near term, the current levels have already priced in FY11 valuations," said Dipen Shah, senior vice-president of research for private client group at Kotak Securities.

"Liquidity is driving the market higher, but we need to have clarity on FY12 earnings."

Shah expects Sensex to rise to 19,500 points at end-December and to 23,000 points by end-June 2011.

Image: A happy investor seen at a brokerage firm in Mumbai.

Text: Reuters

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