Positive news out of Europe in the form of reports that the European Union leaders had agreed on a bank recapitalization plan for the eurozone triggered some heavy buying in global markets on Friday and the bulls at the Indian ring, latching on to the opportunity, went on a rampage and lifted the market to sharply higher levels.
A reduction in petrol prices, some clarity on the General Anti-Avoidance Tax Rules, expectations of speedier reforms following the Prime Minister Dr Manmohan Singh taking up additional charge of the finance ministry and a few liquidity boosting measures from the central bank too contributed substantially to the market's splendid surge on the final session.
The BSE benchmark Sensex breached the psychological 17,000 mark and went further up north to end the week at 17,430, its best close since 20 April 2012, with a handsome gain of 458 points or 2.7%. The Nifty index of the National Stock Exchange surged 133 points or 2.6% to 5279. The Sensex and Nifty hit their highest closing levels since 19 April 2012 and 20 April 2012, respectively.
With several midcap and smallcap stocks too attracting strong buying, the BSE Midcap and Smallcap indices move up by 2.4% and 2.15%, respectively. Price movements, for a better part of the week, were quite volatile due to expiry of June series derivatives contracts on Thursday.
It was not a good session for the market on Monday as stocks drifted lower despite a bright start. The market faltered in afternoon trade as investors indulged in some heavy selling after the measures announced by the government to boost the sagging economy fell short of expectations.
The BSE benchmark Sensex, which sailed past the 17,000 mark in early trades, ended the day with a loss of around 90 points at 16,882. The Nifty closed at 5115, recording a loss of 31 points.
The Reserve Bank of India hiked the limit of external commercial borrowing by US$10 billion. Moreover, the regulator also increased the limit of overseas investment in government bonds by US$5 billion to US$20 billion.
Currently, Foreign institutional investors (FIIs) can investment in Indian corporate bonds upto US$20 billion. While the cap in government bonds is at US$15 billion, FIIs are barred to invest in infrastructure bonds upto US$25 billion.
Along with the hike in investment limit, RBI also allowed some long term investors including sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks; to invest in government bonds for entire limit of US$20 billion.
The market was highly lackluster on Tuesday with investors appearing clueless about the near term direction. Moving in a tight band, the indices managed to eke out marginal gains that day. The Sensex ended 24 points up, while the Nifty edged up by about 6 points.
The market ended with modest gains amid selective buying on Wednesday. While the Sensex ended the session with a gain of 61 points, the Nifty closed 21 points up.
With investors mostly staying on the sidelines amid weak cues from Asian and European markets, equities ended on a flat note after an extremely choppy session on Thursday. Thanks to some hectic activity in the F&O segment due to the expiry of near month contracts, a few blue chips attracted buyers, but the overall mood was subdued right through the day.
The Sensex ended the day with a gain of 23 points, while the Nifty edged up by a little over 7 points that day.
Amid easing worries about eurozone debt following the European leaders agreeing on a bank recapitalization plan, and on expectations that the Indian government will speed up reforms, the market rallied sharply and ended at its best level in more than two months on Friday.
A reduction in petrol prices and the clarification on General Anti-Avoidance Rules also contributed substantially to the market's whopping gains on Saturday. Some stock specific stories too aided sentiment to a notable extent. While the Sensex vaulted 439 points, the Nifty ended stronger by 130 points.
According to reports, eurozone leaders have agreed to take action to bring down Italy's and Spain's spiraling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year.
On Thursday, the government issued draft guidelines for implementing the controversial anti-avoidance tax proposal. A panel of seven members suggested that the provisions be applied from 1 April 2013, and that the onus of proving wrongdoing should be on the authorities. The panel has proposed that to avoid the indiscriminate application of the General Anti-Avoidance Rules provisions and to provide relief to small taxpayers.
The panel has suggested that GAAR provisions should be invoked on a foreign institutional investor, if it chooses to take a treaty benefit, but would not in any case be invoked in the case of the non-resident investors of the FII. The panel suggested that the GAAR provisions are meant for cases of tax evasion, not avoidance, or tax mitigation, where a tax payer takes advantage of a fiscal incentive allowed by a tax law.
Several bank stocks, led by sector majors ICICI Bank, State Bank of India and HDFC Bank, ended with impressive gains last week. Rate sensitive automobile and realty stocks too had some good spells during the week. Maurti Suzuki gained over 6% and Hero Motocorp surged 2.8%, while Bajaj Auto and Mahindra & Mahindra gained 1.7% and 1.3%, respectively. Tata Motors, however, ended the week on a negative note.