Nifty at 2-yr peak as fiscal cliff deal eases concerns

The Nifty closed at a two-year high on Tuesday while the Sensex rallied to a 20-month peak as foreign investors continued shopping for stocks after the US Senate and the White House struck a last-minute deal to delay proposed tax hikes and spending cuts by at least two months. India was among top-performing markets in 2012, with the Nifty gaining 22% in dollar terms and foreign investors buying equities worth $24.5 billion.

Shrugging off concerns on the widening current account deficit — which hit 5.4% of GDP in the three months to September — and sluggish core sector growth of 1.8% in in November, the Sensex gained 0.8% to close at 19,580.81 points after hitting an intra-day high of 19,623.76 points, the highest level since April 26, 2011.The broader Nifty ended the day with gains of 0.77% to close at 5,950.85 points. Most global markets remained closed for the New Year's Day holiday.

Having turned in a superlative performance last year, with investors convinced that valuations were reasonable, the Sensex now trades just a shade above its long-term valuations of 15 times one-year forward earnings. At the current level of 19,580, the Indian market commands a multiple of 13.8 times estimated earnings for 2013-14 and is cheaper than both Indonesia and Thailand. Last year, India saw more than its fair share of foreign flows, attracting more money than South Korea. Most foreign brokerages are currently overweight India with expectations of a rate cut in January and more policy reforms running high.

The passage of the US Senate Bill, that would make permanent the tax cuts for most households, continue expanded unemployment benefits and delay automatic spending cuts for two months, cheered the sentiment. If the agreement becomes law, it would avert most of the immediate pain and postpone Congress' fiscal feud for just two months – until a February fight over raising the $16.4 trillion debt limit.

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