Stocks
Will the Indian market remain up if liquidity injection by ECB stops?

One of the reasons that stock market has been up for the past two months is massive liquidity injection by the European Central Bank—exactly the way the market was charged by quantitative easing in the US in 2009 and mid-2011. Are there signs that liquidity injection by ECB is about to halt? In that case, will the market continue to move higher?

The Sensex has been up a sharp 15.4% since 7 January 2012, mainly due to massive inflow of money from foreign institutional investors (FIIs). FIIs have put it as much as Rs22,989.95 crore in January and February this year so far; over the first quarter of 2011, when they had pulled out Rs7,931.11 crore. Why the sudden inflow of investment? Where is the money coming from? While we would like to believe suddenly the foreigners have rediscovered the hidden charms of India, the fact is that a lot of this money has is coming from short-term traders who are taking advantage of massive liquidity injection by the European Central Bank (ECB) to trade in risky assets like emerging market equities.

The total amount the ECB has spent since starting the programme, back in May 2010 remained at 219.5 billion euros, with just 59 million euros last week. The ECB and the 17 Eurozone national central banks buy the bonds under what the ECB calls its Securities Markets program (SMP). European laws forbid it buying the bonds direct from governments, but it gets round the restriction by buying them from banks and other investors on the open market.

This parallels that of the liquidity injection programme of the US Federal Reserve of 2009-11. Whenever there have been injections by central banks equities have started to shoot up. The graph below highlights how central bankers’ liquidity injection programme has pushed up the markets at different times in the last three years.

You can see how markets have expanded significantly, since 2009, shortly after the sub-prime bust, after the US Fed introduced the first of its Quantitative Easing (also known as QE1). QE1 is part of the broad monetary policy of printing money and dumping it on the economy vis-a-vis banks. This leads to a ‘loose money’ policy, as banks now have more money to lend. The hope is that with higher bank lending, economic activity would pick up. But if there are no takers for more bank loans, the money goes into speculative purposes like funding hedge funds or the bank’s own trading departments, which in turn leads to widespread purchase of financial instruments, such as stocks or gold or commodities. This is what has propped the markets up with each quantitative easing. Some of this money eventually finds its way to emerging markets, like India. Notice that after the first QE1 ended, the markets fell. Immediately, the Fed panicked and introduced QE2. The markets reacted positively and moved upwards, until it sagged again, at the end of QE2. Incidentally, after this, the ECB then stepped in and announced it would buy Euro Bonds. Not surprisingly, the markets took the good news and climbed back up. As the bond buyback eased towards its end, the US Fed ‘hinted’ at QE3. It remains to be seen whether it will announce it.

 

What do we notice from this chart? What we see as bull or bear market is only partly linked to fundamental factors. A bigger factor is whether large speculators will access cheap money or not as and when the two big central banks decide to loosen their purse strings. If they are easing, the market stabilises and rises. If the easing ends, the market sags. Interestingly, according to some savvy traders like Eric Schwarts, who runs a great blog called marketanthropology.com, the ECB has halted its bond buying programme for the first time since early August. Is that signal that the Indian markets are about to give up some of the huge gains of the Jan-Feb period?

 

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COMMENTS

CHANDU CHARTIST

5 years ago

INDIAN MARKET TURN LIKE LASS VEGAS CASINO. BUT AS FAR AS TECHNICAL LEVELS ARE CONCERN IT WILL NOT TEST LAST YEAR HIGH AND BREAK DOWN TO NEW LOW BEFORE YEAR END 2012. MAY CORRECT FROM 5740 OR 5950 OR 6050 BUT THERE IS NO POSSIBILITY OF CROSS LAST 2011 HIGH

Cold wave cheers wine grapes while table grapes turn sour

The freezing temperature brought cheers to wine grape farmers and wine makers while the table grapes growers are reeling under huge losses

With the severe cold wave, witnessed across Maharashtra, taking toll on the grapes production in Nashik, you may not be lucky to get those sweet-sour-tangy fruits, or pay extra to relish them. Instead, a glass of wine, would make up for your sacrifice.
 
The freezing temperature has cheered the wine makers, while the table grapes growers are reeling under huge losses. Reason? The vintage 2012 of wine grape is all set to raise the quality of Indian wines. At the same time, table grapes that are consumed by everyone, have lost their leaves and subsequently its sugar content due to cold conditions.

Nashik district of Maharashtra, popularly known as country's wine capital, accounts for about 75% of the total national production of grapes. While the table grape crop destroyed is as high as 70%, there is very little impact on wine grapes. Instead, experts see this production as one of the best in recent times.
 
"Since last two years harvest has been bad due to unseasonal rains. During the souring and berry stage (ripening) the harvest was attacked by lot of diseases. This year, winter has helped for healthy produce. Though the production has not seen any increase and the harvest was delayed, the quality will definitely be one of the best we had seen. Wine grape, this year, will have perfect balance of acidity and sugar, essential for making high quality wine," said Sachin Darawade, operational manager, York Wine.

Concurs Avik Narula, assistant operational manger, Fratelli Wines, the only vineyard in Nashik located on a hilly terrain. "The crushing for this season has already begun. This year's quality is very fine."
 
Past two years has been bad for the sector. With unseasonal rains playing havoc, there was 30-40% loss in the production. Subhash Arora, a wine expert and director of Indian Wine Academy writes, "After three miserable years for the Nashik growers suffering vagaries of nature and unexpected, out-of-season rains in November resulting in extra labour costs and extensive damage to the crops, the region has seen a perfect weather that is expected to yield both higher quality and quantity than the last three years."
 
Mr Arora says that according to Neeraj Agarwal, chief viticulturist at Sula Vineyard, Nashik, Sula had a crop of 5,000 tons from its own vineyards and the contracted farms last year but expects a bumper crop of 6,000 tons and that too with excellent quality.

Meanwhile table grape growers are in bad state. According to a media report, preliminary estimates indicates that farmers in the Nashik are have suffered losses of about Rs1,300 crore. The table grape has been affected mainly due to the shedding leaves of the plant and the decreasing sugar sap in the fruits.
 
Kailash Bhosale, official from Draksha Bagaitdar Sangh, Nashik, says that, "Due to falling temperature, the water remained on the leaves and fruits, resulting in formation of ice. Leaves were damaged and eventually led them to shed. Some places have seen losses up to 90%. At the grape orchids, where harvesting is still pending, loss of leaves will result in lower sugar content."
 
When asked on why wine grapes are not affected, Mr Bhosale explains that, "Wine grapes, unlike table ones, are grown without using any hormones. For table grapes dipping and spraying of GA is essential, hence they get affected in extreme weather condition."
 
So if you are a grape lover, then this time instead of eating grapes, enjoy your wine- red or white, whichever you like!

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COMMENTS

Capt Ashok Malkani

5 years ago

This is indeed good news.. I understand that the whites will be superior, the reds did not get enough sunshine. Is that correct ?

In the final result, I hope that the prices do not go up, on reports of a good vintage !!! That will turn the wine to vinegar.

Bullish signs still: Tuesday Closing Report

Nifty will look weak below 5,500

The market traded in the positive for the entire session and settled in the green for the second day. Sentiments were boosted following comments from RBI deputy governor Subir Gokarn that the central bank may go in for another CRR cut on the back of tight liquidity.

As we had mentioned in our Friday’s closing report, the Nifty crossed the level of 5,600 today and settled a little above it at 5,607. The gains were on a lower volume of 111.78 crore shares on the National Stock Exchange.

Resuming trade after an extended weekend, the local market opened mixed on reports that Eurozone policymakers agreed to a second bailout package for Greece. The Nifty started the day at 5,562, two points down from its Friday’s close while the Sensex gained 15 points to open trade at 18,304.

The market touched its intraday day low in the early session itself. At the lows, the Nifty fell to 5,562 and the Sensex went back to 18,293. However, brushing aside the sluggishness the indices soon picked up momentum on continued buying support from institutional investors.

The benchmarks were range-bound till post-noon trade as most markets in Asia were trading lower. Realty, consumer durables and oil & gas stocks led the upmove which began from around 2.00pm onwards. The gains helped the benchmarks hit their day’s high in the last hour. At the highs, the Nifty touched 5,622 and the Sensex scaled 18,471.

However, while the market came off the highs, it closed in the green for the second day in a row. At the close, the Nifty gained 43 points to 5,607 and the Sensex surged 139 points to settle at 18,429.

The advance-decline ratio on the NSE was in favour of the gainers at 1128:731.

The broader indices outperformed the Sensex today, with the BSE Mid-cap index gaining 0.91% and the BSE Small-cap index climbing 1.20%.

With the exception of the BSE IT index (down 0.16%) all other sectoral gauges settled higher. They were led by BSE Realty (up 4.34%); BSE Consumer Durables (up 3.29%); BSE Oil & Gas (up 2.29%); BSE Power (up 0.97%) and BSE Capital Goods (up 0.87%).

The top five scrips on the Sensex were BHEL (up 4.78%); ONGC (up 3.70%); Hindalco Industries (up 2.95%); Reliance Industries (up 2.92%) and Bharti Airtel (up 2.79%). On the other hand, Sterlite Industries (down 3.46%); Tata Power (down 2.61%); Wipro (down 1.46%); Tata Motors (down 0.99%) and Hindustan Unilever (down 0.82%) settled on the bottom of the index.

BHEL (up 4.56%) led the gainers on the Nifty. It was followed by ONGC (up 4.43%); Reliance Infrastructure (up 3.76%); Bharti Airtel (up 2.89%) and Hindalco Ind (up 2.85%). The major losers on the index were Sterlite Ind (down 3.61%); Tata Power (down 2.99%); BPCL (down 1.66%); Wipro (down 1.41%) and NTPC (down 1.28%).

Markets in Asia, which began trade on a soft note despite the positive news from Europe, pared their losses and settled mostly higher. The gains came as investors welcomed China’s weekend move to reduce the reserve requirement ratio for banks, a move that would lead to additional lending by banks.

The Shanghai Composite gained 0.75%; the Hang Seng rose 0.25%; the Jakarta Composite advanced 0.57%; the KLSE Composite climbed 0.21% and the Straits Times settled 0.13% higher. On the other hand, the Nikkei 225 fell by 0.23%; the Seoul Composite shed 0.03% and the Taiwan Weighted lost 0.42%. At the time of writing, the key European indices were in the negative while US stock futures were trading higher.

Back home, foreign institutional investors were net buyers of shares totalling Rs536.49 crore on Friday. On the other hand, domestic institutional investors were net sellers of equities amounting to Rs223.07 crore.

State-run Rural Electrification Corporation (REC) has received the finance ministry’s approval to raise Rs3,000 crore through issue of tax-free bonds this fiscal. The tax-free bonds issue, which will open on 5th March, will offer an interest rate of not less than 50 basis points below the yields on Government Securities. The stock declined 3.08% to close at Rs241 on the NSE.

Pharma major Ranbaxy Laboratories today said its subsidiary Ranbaxy Australia Pty Ltd (RAPL) has launched generic Atorvastatin tablets, used for reducing cholesterol, in the Australian market. Atorvastatin is the most prescribed statin in Australia and according to IMS its current market size $680 million. Ranbaxy closed 0.07% higher at Rs448.90 on the NSE.

JSW Steel plans to raise up to $275 million through overseas borrowings mainly to buy back its outstanding foreign currency convertible bonds. The fund raising exercise of up to $275 million includes a green-shoe option of $75 million, the company said. The stock rose 0.95% to settle at Rs863.55 on the NSE.

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COMMENTS

krish

5 years ago

is SEBI WATCHING THE NON-STOP SHOW OF THE BOURSES? OR IS IT IN SLUMBER & WAKE UP WHEN ITS TOO LATE!

NOTHING GREAT IS HAPPENING EITHER IN saarey jahan se achha (nahi hai yeh) hindustan hamara OR IN GREECE, OR IN EUROZONE OR IN THE USofA OR IN ANY '.........STAN' OR ANYWHERE ELSE FOR THAT MATTER!

THEN WHATS GOING ON!? ITS POOR small(Est) investors who are going to get sucked out in this orchestrated pre-budget rally!

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