Further Gains

The strong US market close on Friday augurs more gains next week. The Sensex will probably rise to 17,400.

Indian markets began the week on a strong note, following a surge in manufacturing activity in the month of February and a rise in exports for the third consecutive month in January. During the week the Sensex gained by a robust 565 points. We expect the market to remain strong next week. The Sensex will probably rise to 17,300-17,400.

On Tuesday 2 March 2010, the Sensex shot up 343 points from Friday’s close to 16,773, while the Nifty closed at 5,017, up 95 points. Prime minister Manmohan Singh on Monday ruled out rolling back the price hike in retail fuel prices despite pressure from his main allies, saying that populist policies would hurt the economy in the long term. During trading hours, global ratings agency Moody’s Investors Service said that the latest Budget represents a strong intention to renew fiscal discipline which, coupled with the fuel price increase announced last week, is positive for its sovereign rating on India.

The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, rose to 58.5 in February, its strongest reading since June 2008, from 57.7 in January. A reading above 50 means activity is expanding.

Exports rose by an annual 11.5% in January 2010 to $14.3 billion, the third consecutive monthly rise after 13 straight months of decline, the government said. Imports rose 35.5% from a year earlier to $24.7 billion. The trade deficit stood at $10.4 billion in January compared with $5.4 billion a year earlier. Exports for April-January, the first 10 months of the 2009-10 fiscal, were down 17.8% at $131.9 billion.

According to reports, the Purchasing Managers’ Index (PMI), derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS), fell to 52 in February from 55.8 in January. The Australian central bank raised its cash rate another quarter of a percentage point to 4%. According to the US commerce department, the fourth-quarter gross domestic product of the US grew at a 5.9% annual rate.

On Wednesday 3 March 2010, the Sensex was up 227 points. During the day, agriculture minister Sharad Pawar said that the winter-sown crops output will be good and will ease high food prices. Steel secretary Atul Chaturvedi said that steel demand is seen rising by 10% in the fiscal year to March 2011, helped by higher spending on infrastructure.

On Thursday 4 March 2010, the Sensex declined 28 points. During trading hours, the government released data that showed that the food price index rose 17.87% in the 12 months to 20 February 2010, faster than the annual rise of 17.58% in the previous week. Finance minister Pranab Mukherjee said that India’s economic recovery is still being driven by public spending and is not yet broad-based, further clouding the debate on the timing of rate hikes by the central bank.

On Friday 5 March 2010, the Sensex closed at 16,994, gaining 23 points from the previous day’s close, while the Nifty rose 8 points to close at 5,089. During trading hours, the government said that it would seek Parliamentary approval to spend an extra Rs31,780 crore for the fiscal year to end-March 2010. There is no risk that India will borrow more than planned to fund supplementary spending, said revenue secretary Sunil Mitra. The government will introduce legislation for a direct tax code in the monsoon session of Parliament, Mr Mitra added.

In global fund news, investors pulled money out of Chinese and European equity funds last week, following policy risks and fears about Greece's debt problems, EPFR Global said. Emerging equity funds had a third straight week of inflows, with a relatively modest $240 million flowing into the funds, while year-to-date net inflows have grown to $2.20 billion. Asia ex-Japan, Latin America and EMEA equity funds had net inflows ranging from $42 million to $169 million. China equity funds had $17 million moving out.
 
As per media reports, Chinese premier Wen Jiabao pledged to maintain economic growth and keep the yuan stable. He reaffirmed the government's 8% gross domestic product growth target for 2010. He said that China’s GDP grew 8.7% to 33.5 trillion yuan in 2009. The premier also pledged additional measures to curb speculation in the nation’s housing market, signalling tighter lending to the sector, targeted taxes, and stricter enforcement of real-estate laws.

Economic growth in the 16 countries that use the euro slowed in the fourth quarter, revised official data showed on Thursday, 4 March 2010. Quarterly gross domestic product growth slowed to 0.1% in the final three months of last year, from 0.4% in the three months to the end of September, the European Union’s Eurostat statistics agency said. However, the yearly drop in GDP in the third quarter was revised to show a deeper decline of 4.1% from the previous reading of 4%.

As per US media reports, initial jobless claims for the week ended 27 February 2010 totalled 469,000 and continuing claims dropped more than expected to 4.50 million. Factory orders for January 2010 increased 1.7%, which was in tune with the 1.8% increase that had been widely expected. The US markets closed very strong on Friday and we should see more gains next week.
 

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