A downmove is quite probable

During the week, the Indian market remained highly volatile. The Sensex managed to gain only 17 points over the entire week. It has been a frustrating wait for investors hoping for a breakout above 17,400. We may see a dip to below 16,500 before the next leg up. On Monday, 7 December 2009, the Sensex declined 118 points, ending the day at 16,983, while the Nifty declined 42 points to close at 5,067. During trading hours, finance minister Pranab Mukherjee said that the government has not issued any directive to State-run banks on consolidation and it was up to the banks themselves to decide on mergers.

Reserve Bank of India deputy governor Subir Gokarn said on Saturday that a persistent rise in food prices may raise broader inflationary expectations and the central bank is looking to strike a balance between supporting growth and taming inflationary worries. The exit from an easy monetary policy is a “graded” process and economic growth alone will not determine its pace, he said. On Tuesday, 8 December 2009, the Sensex gained 245 points, ending the day at 17,228, while the Nifty closed at 5,148, up 81 points.

During trading hours, the government said that it will seek Parliamentary approval to spend an extra Rs25,725 crore ($5.5 billion) for the fiscal year to end-March 2010. The gross additional expenditure would be Rs30,943 crore, of which Rs5,217 crore would be met through savings, the government said.
The government will spend an extra Rs3,000 crore on fertiliser subsidies and Rs3,460 crore on food subsidies. The government would also spend Rs800 crore on an equity infusion in State-run carrier Air India.

According to Mr Mukherjee, the government will complete share sales through public offers in three State companies by the end of March 2010. Divestment of 5% each in NTPC and Rural Electrification Corp and 10% in unlisted Satluj Jal Vidyut Nigam is under implementation and there is a need to adhere to fiscal prudence as early as possible, he said.

As per media reports, Reserve Bank of India (RBI) governor D Subbarao said that measures to control capital inflows into India could not be ruled out in case there was a surge in foreign funds that had to be contained. The RBI governor said that he was not willing to debate at this time on the instruments or timing, as this would depend on how the situation evolves.

Meanwhile, the government has partially lifted the ban on rice and wheat exports by allowing organic varieties of these grains for overseas sale, as per reports.

According to the Manpower Employment Outlook Survey, India Inc is all set to step up hiring in the last quarter this fiscal as employers are more optimistic than their counterparts in other nations. The survey said brisk hiring is anticipated by Indian employers during the upcoming quarter.

It further added that with 38% of employers expecting total employment to increase, 2% forecasting a decrease and 53% predicting no change, the net employment outlook is a robust 36% and once seasonal adjustment is added to the data, the outlook stands at 39%. On Wednesday, 9 December 2009, the Sensex closed at 17,125—102 points down from the previous day’s close—while the Nifty declined 36 points, ending the day at 5,112.

According to Mr Mukherjee, the government does not need to borrow more than planned to fund its additional proposed expenditure. The government said on Tuesday that it would seek Parliamentary approval to spend an extra Rs25,725 crore ($5.5 billion) for the fiscal year to end-March 2010. The gross additional expenditure would be Rs30,943 crore, of which Rs5,217 crore would be met through savings, the government said. The government will spend an extra Rs3,000 crore on fertiliser subsidies and Rs3,460 crore on food subsidies. The government would also spend Rs800 crore on an equity infusion in State-run carrier Air India.

Meanwhile, the RBI may reportedly ask banks to impose a ceiling on their investments in mutual funds and also prescribe norms for such investments, as it attempts to tighten rising exposure and rein in deployment of banking funds indirectly in sectors or companies to which banks could not lend directly due to exposure limits.

According to data from the Society of Indian Automobile Manufacturers, car sales in India rose an annual 61% to 1,33,687 units in November 2009 over November 2008.

Sales were boosted by improved consumer sentiment, easier availability of loans and a low sales base a year earlier, an industry body said. Sales of trucks and buses, a gauge of economic activity, doubled to 40,847 units in November from 20,631 a year earlier, data showed. On Thursday, 10 December 2009, the Sensex gained 64 points from the previous day’s close, ending the day at 17,189, while the Nifty closed at 5,135, up 23 points.

During the day, D Subbarao said that capital flows into India are in line with requirements and as of now there is no concern of the flows building asset price bubbles. If and when there are excess capital inflows, the apex bank will have to respond to that situation, he added.

After trading hours on Wednesday, RBI said that it would withdraw from 1 January 2010 some concessions on overseas borrowing for Indian firms introduced during the global credit crisis, although it also eased rules for the infrastructure and telecom sectors.

A facility for Indian companies to buy back their foreign currency convertible bonds under the automatic route and approval route would be discontinued from January 2010 due to the improvement in the equity market. The central bank said that it would allow non-banking financial companies which are focused on financing infrastructure projects to borrow from overseas markets under the approval route. It also extended by a year a rule which allowed firms involved in developing integrated townships to borrow overseas. The central bank also allowed telecom firms to access overseas markets to fund their bids for 3G spectrum, effective immediately. The government plans to auction 3G spectrum in January 2010.

On Friday, 11 December 2009, Indian markets came under huge selling pressure after industrial production growth—though robust at 10.3%—fell below market expectation of a growth of 13%-14% for the month. The Sensex declined 70 points from the previous day’s close, ending the day at 17,119 while the Nifty closed at 5,117, down 17 points.

According to the latest data from global fund tracker EPFR Global, emerging market equity funds received $2.30 billion in inflows for the week ended 9 December 2009, bringing 2009 inflows to $75.40 billion. Emerging-market funds are heading for record annual inflows in 2009. The previous record was $54 billion in 2007. Among the largest developing nations, Russian stock funds saw inflows rise to a seven-week high of $181 million while Indian equity funds absorbed $128 million, EPFR said.

As per the data released by the government, industrial output jumped 10.3% in October 2009 from a year earlier, helped by stimulus measures and robust domestic demand. Manufacturing output rose 11.1% in October 2009 from a decline of 0.6% a year earlier. September’s annual industrial growth rate was revised upward to 9.6% from 9.1% previously. Andimuthu Raja, communications minister, said that the government would conduct the auction for 3G wireless spectrum as scheduled. The auctions are slated to be conducted on 14 January 2010.