No clear direction

The US Fed’s surprise move to raise discount rates weighed heavily on Indian and Asian markets

Indian markets along with other Asian markets slumped after an increase in the US Federal Reserve discount rate spurred concerns that the economic
bounce-back will slow down as stimulus programs are being unwound. The Sensex declined 145 points to 16,183 from the previous day’s close while the Nifty closed at 4,845, down 43 points.

Next week, we expect Indian markets to move sideways as traders roll over positions from February 2010 derivatives contracts to March 2010 contracts ahead of the expiry of the near-month February 2010 contracts on Thursday, 25 February 2010.

At 12:00 hrs IST, the Sensex was trading down 179 points from the previous day’s close at 16,149. However, at 14:00 hrs IST, the Sensex was trading at 16,154, down 174 points.

At the end of the day, Maruti Suzuki India rose 1% after a senior official of the company told the media that the firm will add 3,000 employees in the next three years and the company was also investing Rs200 crore to add showrooms and stockyards.

Unichem Laboratories has been granted a certificate of suitability from the European Directorate for the Quality of Medicines and Healthcare for Meloxicam and Zolpidem Tartrate. The stock was up 1%.

Jyothy Laboratories remained flat after the company announced the launch of a multi-insect repellent at the Defence Expo in New Delhi.

Himalya International has launched real fruit blended yogurts in metro cities under the brand name ‘Himalya Fresh’. The stock was down 1%.

Jain Irrigation Systems has signed a memorandum of understanding (MoU) with the International Rice Research Institute (IRRI) for collaborative research and adaptive field trials on paddy using micro-irrigation. The stock declined 2%.

According to data released by EPFR Global, investors put their money to work more selectively in the week ended 17 February 2010, choosing mostly developed equity markets and investment-grade bonds, while avoiding Chinese stocks and high-yield bonds. China-focused equity funds had net redemptions for the sixth time in the last seven weeks as fears of more central bank policy tightening spooked investors, while Latin American equity funds posted outflows for the fourth consecutive week. Russia and Indian equity funds had relatively small inflows for the week ended 17 February 2010, while Brazil had a second straight week of outflows.

During trading hours, C Rangarajan, the prime minister’s economic adviser, said that India’s economy is likely to grow at over 7.2% in the current fiscal year ending March 2010. The wholesale price inflation is seen at around 8.5% by the end of March, Mr Rangarajan said. He also said that the government’s market borrowing in the next fiscal year ending March 2011 is likely to be around or slightly lower than the Rs4,51,000 crore ($97 billion) in the current fiscal year.

The prime minister’s economic advisory council said that inflation was a down-side risk to its projected growth rate of at least 8.2% in 2010-11, and any policy action would have to factor in the “significant” danger of high food inflation spreading into broader prices. The fiscal imbalance is a matter of concern and the process of consolidation must begin in the next financial year itself, the entity said.

As per media reports, a foreign brokerage predicts that Indian equity and equity-linked offerings may jump by as much as 33% this year as companies and the government tap a growing pool of domestic capital as the economy recovers. Indian companies may raise $25 billion to $30 billion in share sales in 2010, up from $22 billion last year.

During the day, Asia’s key benchmark indices in Hong Kong, Indonesia, Japan, Singapore and South Korea were down by between 0.99%-2.59%. On Thursday, 18 February 2010, the Dow Jones Industrial Average was up 84 points while the S&P 500 and the Nasdaq Composite were up 7 points and 15 points respectively.

As per US media reports, after trading hours, the US Federal Reserve raised the discount rate from 0.5% to 0.75% effective 19 February 2010 and said that the move will encourage financial institutions to rely more on money markets, rather than the central bank, for short-term loans.

Meanwhile, Singapore’s government said that the economy will increase 4.5% to 6.5% in 2010 after shrinking 2% last year.

In premarket trading, the Dow was trading 50 points lower.

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