With the Fed going for another round of taper at $10 billion, it is now evident that emerging economies (including India) are in close sync to ward off any destabilising impact on their domestic currencies, says SBI Research in its research note
The RBI (Reserve Bank of India) hiked the repo rate by 25 basis points on 28 January 2014 and the rate hike was ostensibly done with the purpose of reigning in inflation, but SBI Research believes it also served another purpose, warding of the contagion in the financial market. This is its opening remark in its research note of January 2014.
According to SBI Research, with the Fed going for another round of taper at $10 billion, it is now evident that emerging economies (including India) are in close sync to ward off any destabilising impact on their domestic currencies.
The year 2014 has already marked the start of the withdrawal of quantitative easing (QE) in the United States and a range of asymmetric policy responses across developed economies. SBI Research points out that the most desired and likely scenario is for the taper to follow a relatively orderly trajectory and for global interest rates to rise only slowly – reaching 3.6% only by mid-2016. Under this scenario capital flows to developing countries is projected to ease from about 4.6% of developing country GDP in 2013 to 4.1% in 2016, as investors take advantage of higher yields in high-income countries.
According to SBI Research, for emerging market economies, growth in 2013 was relatively weak, at an estimated 4.8%. It has been firming in recent months – partly reflecting strengthening growth in high-income countries, but also a recovery from earlier weakness in large middle-income countries, such as India and China. Overall, growth in developing countries is projected to come to about 5.3% this year and 5.5% and 5.7% in 2015 and 2016 respectively. India will not be an exception in this context.
While the recent downtrend in Nifty seems over, a fresh downtrend may start soon in the later part of the upcoming week
The BSE Sensex closed the week that ended on 7th February, at 20,376.56 (down 137 points or 0.67%) while the NSE Nifty closed at 6,063.20 (down 26 points or 0.43%) for the week.
In our last weekly market report, we had mentioned that if the Nifty goes below 6,060, it may test 6,000 or lower. Nifty closed almost near 6,000 on Monday itself. The market sentiment was affected by the slowdown in Chinese manufacturing growth on one hand and on the other the government back home revised the GDP growth rate for the year ended 31 March 2013 downwards to 4.5% from 5% reported earlier. A Chinese manufacturing gauge fell to a six-month low in January as output and orders slowed. Nifty closed at 6,002 (down 88 points or 1.44%).
Negative closing of the US indices on Monday and the weakness on the Asian counterparts spread to the bourses back home on Tuesday. However Indian market was trying to recover from the day’s low which was hit at the start of the day. Data showed factory activity in the US expanded in January at the weakest pace in eight months as orders slumped. Nifty closed at 6,001 (down 0.90 point).
On Wednesday, Nifty closed at 6,022 (up 22 points or 0.36%). The headline HSBC services business activity index increased from December's 46.7 to 48.3 in January, signaling a moderate rate of output contraction that was the weakest in the current seven-month sequence of decrease.
Finance Minister P Chidambaram expressed doubt over passing any key legislation, except for the vote-on-account, during the extended part of the Winter Session of Parliament that began on Wednesday. The Finance Minister also assured that the red line for fiscal deficit drawn by him 18 months ago will not be breached.
Indian markets managed to come out from the sudden plunge, which it made at the beginning of the day, and closed in the positive. As anticipated the controversy over Telangana, along with a number of other issues, washed out proceedings in Parliament for the second day. Nifty closed at 6,036 (up 14 points or 0.23%).
News from US, Philadelphia President Charles Plosser, who votes on policy this year, said he foresees the economy to expand 3% in 2014 as the jobless rate falls to 6.2% by year-end, warranting a quicker tapering to bond purchases by the central bank.
On the back of the news from the US where the initial jobless claims dropped for the first time in three weeks, falling 20,000 to 331,000 in the period ended February 1 the indices back home moved up on Friday. After a volatile session where the Nifty traded almost in the green for the entire session, the index closed at 6,063 (up 27 points or 0.45%).
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As long as the Nifty stays above 6,030, it may move higher
On Thursday, we had mentioned that the Nifty has to keep itself above 6,000, for the upmove to continue. Today, for the entire session the benchmark kept itself above this level and closed in the green for the third consecutive session on Friday. Today except for a few minutes trading in the red, both the benchmarks managed to stay well above Thursday’s close. The positive momentum existed on the back of fall in the jobless claims in the US.
The BSE 30-share Sensex opened at 20,441 and moved between 20,282 and 20,451 and before closing at 20,377 (up 66 points or 0.32%) while the NSE Nifty opened at 6,078 and traded between 6,031 and 6,080 before closing at 6,063 (up 27 points or 0.45%). The NSE recorded a volume of 54.66 crore shares.
The Indian economy is expected to grow 4.9% in FY14, marginally lower than the Finance Ministry's estimate of a 5% growth, a government statement said on Friday. The GDP grew 4.6% annually in the first half of the current fiscal year, down from 5.3% in the corresponding period a year ago. Growth slowed in almost all sectors, including services such as tourism, transport and telecoms.
Row over Telangana statehood and the harassment of Tamil fishermen by Sri Lankan Navy rocked Parliament for the third day today, turning the first week of the extended Winter Session into a complete washout.
US indices closed Thursday in the green. Initial jobless claims dropped for the first time in three weeks, falling 20,000 to 331,000 in the period ended February 1, according to the Labor Department. The monthly US jobs data will be released today.
All the Asian indices closed in the green. Nikkei 225 was the top gainer which rose 2.17%.
China's services sector grew at its slowest pace in almost 2-1/2 years in January. The HSBC/Markit Services Purchasing Managers' Index (PMI) retreated to 50.7 in January, a low last seen in August 2011 though still above the 50-point level that demarcates growth and contraction. December's PMI was 50.9.
European indices were trading in the green while US Futures were trading marginally higher.
In Europe, the European Central Bank kept interest rates unchanged on Thursday. The Bank of England kept its benchmark rate at a record-low 0.5%, while its bond-purchase plan stayed at 375 billion pounds ($611 billion) on Thursday.
UK factories increased production by less than forecast in December, suggesting manufacturing is set for steady rather than runaway growth this year. Output rose 0.3% from November, the Office for National Statistics said today in London. Industrial output rose 0.5% in the final three months of the year. Manufacturing grew 0.7% in the fourth quarter.