Mumbai: Indian shares surged past the psychologically key 25,000-point level on Monday as right-wing leader Narendra Modi was set to take office as prime minister, with investors betting he would unleash economic reforms. The Bombay Stock Exchange's benchmark index, known as the Sensex, rose nearly two per cent to 25,175.22 points. But shares then retreated as investors locked in profits and the Sensex ended the day just 0.10 per cent higher at 24,716.88 points.
"The return of the markets to 25,000-plus levels shows gains we saw on election day were not a bubble," said Alok Churiwala, head of Churiwala Securities based in Mumbai. "People really expect this government to perform well," said Churiwala.
The index touched a lifetime high of 25,375.63 points on May 16 when Modi's landslide election victory was announced. The rupee also gained strength on Monday, climbing to an 11-month peak of 58.41 to the dollar. Modi's Hindu nationalist Bharatiya Janata Party is expected to steer India firmly to the right after 10 years of rule by the left-leaning Congress party. He was set to take the oath of office in New Delhi later Monday.
The premier-elect, whose mantra is "less government, more governance", has indicated he plans to have a downsized administration from the previous Congress government. Media reports said he would chop some 26 ministerial posts from the previous administration. Modi's government will number 45 including him, down from 71 in outgoing prime minister Manmohan Singh's scandal-tainted Congress-led coalition administration, the Press Trust of Indian news agency and NDTV channel reported. Modi's invitation to Nawaz Sharif, leader of arch-rival Pakistan, to attend the swearing-in ceremony had "gone down very well with investors" who hope the move will pave the way for more stability in the troubled region, Churiwala added.
But some analysts warned the market was becoming over-optimistic since Modi's policies were focused on long-term reform rather than quick economic fixes. "Right now, the market is moving up on hope and not factoring in any negatives. The ground realities remain the same," said Rahul Bhandawat of Equentis Capital. The new government must overcome numerous challenges including stubbornly high consumer price inflation, sluggish exports and a sharp growth slowdown before it can unleash India's economic potential, said analysts.
