Nifty must hold above today’s low to reach 5,000
The sell-off that started in noon trade following the political impasse over foreign direct investment in multi-brand retail led the market lower today. The Nifty made a higher low and barely made a higher high and ended in the red. The index must hold itself above today’s low for further gains up to the level of 5,000. However, if it breaches 4,765, we may see the index moving sideways for the time being. The volume on the National Stock Exchange was 57.14 crore shares.
The market opened higher tracking the firming trend in the global arena. US stocks closed in the green overnight, ending their seven-day decline, on hopes that European leaders would come up with some solutions to solve the continent’s debt problems. The optimism also led the Asian pack higher in morning trade. Back home the Nifty added 13 points to its previous day’s tally to open trade at 4,864 and the Sensex started the day at 16,210, up 47 points.
Profit booking led the indices lower in the initial hour. However, buying in select stocks saw an upward movement in the indices, with the market emerging into the positive in the pre-noon session. The indices touched their day’s high around noon with the Nifty rising to 4,866 and the Sensex scaling 16,210.
But the gains were temporary as the benchmarks once again drifted lower amid choppy trade. The benchmarks fell to the day’s lows in the post-noon session as political developments made investors nervous. At the lows, the Nifty fell to 4,787 and the Sensex went back to 15,953.
Making a half-hearted recovery at the close, the indices managed to hold on to their psychological levels. The Nifty closed 46 points down at 4,805 and the Sensex settled 159 points lower at 16,008.
Markets in Asia closed with gains of over 1%-2% on optimism that European policymakers will chalk out a plan to contain the debt crisis. Finance ministers from the 17-member European Union are meeting in Brussels today to work out details on how the European Financial Stability Facility will boost its muscle by insuring sovereign debt with guarantees.
The Shanghai Composite gained 1.23%; the Hang Seng rose 1.21%; the Jakarta Composite climbed 1.12%; the KLSE Composite advanced 0.92%; the Nikkei 225 surged 2.30%; the Seoul Composite jumped 2.27% and the Taiwan Weighted closed 1.30% up. Bucking the trend, the Straits Times lost 0.23%.
Back home, foreign institutional investors were net sellers of stocks totalling Rs302.59 crore on Monday. On the other hand, domestic institutional investors were net buyers of shares aggregating Rs307.30 crore.
Citigroup’s growth estimate of 7.1% is lower than the projections made by the Organisation for Economic Cooperation and Development, Centre for Monitoring of India Economy, Crisil and ICRA, who have all pegged India's GDP growth in 2011-12 at between 7.3% and 7.6%
New Delhi: International financial conglomerate Citigroup today revised its 2011-12 growth forecast for the Indian economy downward to 7.1% from the earlier estimate of 7.6% on account of the global slowdown and domestic factors like a tight monetary policy, reports PTI.
“We are reducing our FY11-12 gross domestic product (GDP) estimate from 7.6% to 7.1%,” Citi Investment Research & Analysis said in its ‘India Microscope’ report.
The global major has also revised its forecast for India’s GDP growth in 2012-13 downward to 7% from the earlier estimate of 7.5%.
Citi’s growth projection for the current fiscal is way below the 7.6% forecast made by the Reserve Bank of India (RBI).
It is also lower than the projections made by the Organisation for Economic Cooperation and Development (OECD), Centre for Monitoring of India Economy (CMIE), Crisil and ICRA, who have all pegged India's GDP growth in 2011-12 at between 7.3% and 7.6%.
The Indian economy expanded by 8.5% in 2010-11.
Citi said the hangover from the pre-recession credit boom will cast a shadow in 2012 as well.
“In addition, domestic issues, including supply-side bottlenecks in the coal and power sector and the lagged impact of monetary tightening, are taking a toll on domestic growth,” it said.
It said the current situation is reminiscent of 2008-09, when the Indian economy faced a plethora of problems, including the global crisis, delayed investments due to uncertainty on the election front and aggressive policy tightening resulting in a slowdown.
“Unfortunately, India has less manoeuvrability relative to the 2008 pullback given its increased fiscal constraints, elevated levels of inflation and government decision-making.
This will likely result in weak growth...” Citi said.
While issues like environmental clearances and land acquisition have affected infrastructure sectors like power and coal, the high interest rate regime has been blamed for making credit expensive and leading to a halt in fresh investment.
The RBI has hiked lending rates 13 times by a total of 350 basis points since March 2010 to curb inflation.
In addition, the world economy has been affected by the debt crisis in the Eurozone and a slowdown and high unemployment in the US.
Regarding inflation, Citi said: “We expect inflation to remain over 9% till the end of 2011 and average 7.5%-8% in 2012.”
Headline inflation has been above the 9% mark since December last year and stood at 9.73% in October this year.
“In its latest policy, the RBI stated that the likelihood of (further) rate action is relatively low. However, the key issue now is its inflation tolerance level, as inflation is way above its medium-term target of 4%,” Citi said.
“Given the sharp deceleration in growth, the possibility of lower commodity prices and a worsening in global macro conditions, we expect the RBI to begin its easing cycle by the second half of 2012,” it added.
It said that a higher payout on account of oil subsidies will push up the fiscal deficit to 5.1%-5.8% in 2011-12, as against 4.7% in 2010-11.
“We expect the deficit to widen between 5.1%-5.8% of GDP in FY11-12, depending on the extent of the payout of oil subsidies,” Citi said.
“This is higher than budgeted targets of 4.6% of GDP and thus this could result in additional funding requirements to the tune of Rs50,000 crore over-and-above the recently announced extra Rs53,000 borrowing programme,” it said.
The conglomerate said to incentivise fresh investment, the government needs to undertake a number of steps, including rationalisation of power costs, expedited clearances for mining projects and resolution of issues related to compensation and rehabilitation of people whose land is acquired.
To tackle the problem of inflation, it suggested improving the logistics chain to reduce wastage, raising productivity by emphasising seed, irrigation and fertiliser-related reforms and unifying markets.
It also called for structural steps such as early implementation of Goods and Services Tax (GST) and the Direct Taxes Code (DTC).
Citi also said steps should be taken to address concerns over unreliability of government data.
“Another important aspect to rooting out corruption would involve electoral reform... Low limits on election spending have resulted in lack of transparency, widespread corruption and the pervasiveness of black money,” it said.
The hike in interest rates comes a month after RBI raised its key policy rates by 0.25 percentage point to check high inflation
State-owned Union Bank of India has raised lending rate by 0.5 percentage points making existing loans costlier.
The bank has decided to revise Benchmark Prime Lending Rate (BPLR) by 50 basis points from 15% to 15.50%, Union Bank of India informed the BSE.
The revised rates are effective from November 28, it said. The hike in PLR will make existing loan costlier.
The hike in interest rates comes a month after RBI raised its key policy rates by 0.25 percentage point to check high inflation.
RBI raised the short-term lending (repo) rate by 25 basis points to 8.5% and the short-term borrowing (reverse repo) rate by a same margin to 7.5% in a bid to check the rate of price rise.