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Benchmark indices end the year with 30% gains on Modi wave

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The year ended on a buoyant note on Wednesday, with the benchmark indices, Sensex and BSE showing a marked appreciation of at least 30% as against the previous year's dismal 7%.

The BSE Sensex ended the year at 27499.20 registering a massive annual rise of 29.89% while the NSE Nifty at 8282.70 was encouraging at 31.38%. As against the previous year on year growth, the BSE Sensex grew a mere 8.98% as at the end of the 2013 calendar year, while the Nifty was up by 6.76%.

However, the YoY rise for Nifty in 2012 was 27.70% at 5905.10 while for Sensex, it was 25.70% at 19426.

One of the main reasons for the surge in benchmark indices this year has been the shift from a coalition government that derailed growth on account of various economic scams and policy paralysis to an absolute majority government in May when the Bharatiya Janata Party swept the polls to form the government.

The buoyancy has been largely backed by hopes that the new government under the prime minister Narendra Modi would clear the bottlenecks and lead the country back to double digit growth.

Since the past six months the markets have been on the surge and discounting key issues related to reforms like the coal allocation, infrastructure, manufacturing, job generation and fiscal consolidation.

"The market is being pulled up and will continue its upswing," said Vimal Bhandari, CEO and MD at IndoStar Capital Finance Ltd. "But the upswing would depend now upon the investment cycle which is expected to kick start in the first quarter of the next fiscal," he added.

Most market participants said the next big trigger for the markets, apart from global economic issues, would be the fiscal consolidation. The government has already reached 99% of its fiscal deficit. For the period April-November of 2014, fiscal deficit stood at Rs 5.25 trillion or $83.08 billion. Net tax receipts were at Rs 4.13 trillion in the first eight months of the current fiscal year, according to the latest government data.

Given the fact that tax revenues have fallen short of government target, the government will now to depend upon non-tax revenues like divestments of shares in its companies and spectrum sales. In addition to the above, government-owned oil marketing companies are expected to dole out huge dividends since the crude has come off its June high of $115 a dollar to $55-$57 currently. The government has three companies listed for divestments as of now and between the fiscal year ending March 31. The companies shortlisted are Coal India, ONGC and NHPC, together they are likely to fetch about Rs 30,000 crore or thereabout and a similar amount is expected through spectrum sales. Most market players expect the government to sail through and maintain fiscal deficit at the targeted 4.1% of the GDP.

Foreign institutional investors have been bullish on India, though net inflows in the equity segment this calendar year was down 1.21% at Rs 97,054 crore from the previous year's 113136 crore.

"The high note on which the markets ended this year shows that sentiments continue to be buoyed by the Modi factor," said UR Bhat, managing director at Dalton Capital Advisors, an FII. "But external factor do play an important role in the coming months.

The slide in crude and commodities have also imbalanced growth in emerging economies like Russia. Europe remains a concern with election in Greece playing a crucial role, said an analyst at a brokerage.

For the moment, market participants are hoping on the budget to push India to the growth trajectory. "Not much has happened at the ground level, but then there have been serious move like the ordinances on insurance and coal being mooted by the government," said a senior government banker.

The year 2015, remains challenging and all eyes are set on the government's budget announcement in February; rate cuts are not an immediate trigger as RBI remains hawkish.

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