Bias is still up

As suggested last time, we got a weak rally. The market trend is still up. Watch 16,500 on the Sensex

Last week, we had said that we expected a weak rally under which the Sensex  will reach about 16,500 and possibly to 17,000 before pausing or going down again. There was a rally and it was weaker than we thought. It stopped at 16,200. At the end of the week the Sensex gained 237 points. The trend is still up. 

The market perked up following strong global cues after debt-stricken Greece was rescued. However, fears of a possibility that the government may start to unwind its fiscal stimulus in the forthcoming budget continues to weigh on market sentiments. On Monday, 8 February 2010, the Sensex was up 20 points from Saturday’s close, ending the day at 15,936 while the Nifty closed at 4,760, up 3 points.

According to EPFR Global, that tracks foreign inflows, emerging market equity funds lost $1.60 billion in weekly withdrawals, the biggest outflow in 24 weeks. The report further added that investors pulled out almost $1 billion from global emerging market stock funds in the week ended 3 February 2010, the most in more than a year.

On Tuesday, 9 February 2010, the Sensex shot up 107 points to close at 16,042 while the Nifty closed at 4,793, up 32 points. However, on Wednesday, 10 February 2010, the Sensex declined 120 points from the previous day’s close. During trading hours, Subir Gokarn, deputy governor, Reserve Bank of India, said that he was not in favour of targeting inflation and also said that domestic growth drivers would depend on significant increases in capital inflows.

Finance minister Pranab Mukherjee said that the economy could grow at around 7.75% in the 2009-10 financial year ending in March. He said that with latest GDP data for 2009-10 indicating 7.9% growth in the second quarter, the growth outlook for the next two quarters and for the whole year is expected to be in the higher range of most predictions for the Indian economy.

C Rangarajan, chairman of the prime minister’s economic advisory council, said that the government could provide a roadmap for exiting from the fiscal stimulus when it presents its budget on 26 February 2010. He also said that the stimulus exit should be a gradual transition. The RBI will watch the price situation before taking any action on the monetary front, he said.

According to reports, commerce secretary Rahul Khullar said that the finance and commerce ministers are scheduled to meet later in the week to take a decision on the continuation of the stimulus package for exporters. He also stated that exports grew 13% in January 2010 over a year ago.

On Thursday, 11 February 2010, the Sensex shot up 230 points, while the Nifty closed up 70 points. The stock market was closed on Friday, 12 February 2010, on account of Mahashivratri.

Meanwhile, data released by the government showed that annual food inflation rose for the third straight week. The food price index rose 17.94% in the 12 months to 30 January 2010, higher than an annual rise of 17.56% in the previous week. The fuel price index rose 10.44% and the primary articles’ price index rose 15.75%.

After trading hours on Wednesday, the central bank said that it would introduce (from 1 April 2010) a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR). The apex bank said that the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium. The base rate will be applicable for all new loans as well as for old loans that come up for renewal. Existing borrowers who want to switch to the new system before the expiry of their contracts should agree on the revised rate structure with the banker, it said. The base rate could also serve as the reference benchmark rate for floating rate loan products, apart from the other external market benchmark rates, the RBI said.

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