On the Crossroads

Indian markets remained subdued; institutional investors are waiting to buy on declines

The week started off positively on the back of strong manufacturing activity in December 2009, and exports in November 2009. Indian markets remained weak on the last two trading days following weak global cues. However, institutional buyers are waiting to buy on declines. During the week, the Sensex gained only 75 points.

On Monday, 4 January 2010, the Sensex was up 94 points from Thursday’s (31 December 2009) close, ending the day at 17,559, while the Nifty closed at 5,232, up 31 points. As per the HSBC Markit survey, the rate of growth in manufacturing rose for the first time in three months in December 2009, with activity reaching its highest since May 2009 on sharp rises in new work and output. The HSBC Markit Purchasing Managers’ Index (PMI), based on a survey of 500 companies, rose to 55.6 in December from 53 in November. The reading was the strongest since May’s 55.7, which was the strongest in 2009. A reading above 50 means activity expanded during the month.

According to the commerce ministry, India’s export sector has bounced back with outward trade growing by 18% in November 2009. The export figures turned positive after staying in the red for 13 months. The value of exports in November 2009 jumped to $13.19 billion compared to $11.16 billion in the year-ago period.

On Thursday, 31 December 2009, KC Chakrabarty, Reserve Bank of India’s (RBI) deputy governor said the apex bank would review interest rates at its next policy review scheduled for 29 January 2010 and not before. He further said that the credit growth will rise to 17%-18% when GDP growth reaches 8%-9%.

Meanwhile, on Saturday, 2 January 2009, C Rangarajan, chairman of the Economic Advisory Council to the prime minister, said that the economy will expand 8% in 2010-11 after growing between 7% and 7.5% in the current fiscal year to end-March. He also said that the economy would return to an annual growth rate of 9% in the fiscal year to end-March 2012 on the back of an improvement in the world economy and global trade. On Tuesday, 5 January 2010, the Sensex was up 128 points from the previous day’s close, ending the day at 17,686, while the Nifty closed at 5,278, up 46 points. {break}
As per the EPFR global funds tracker, emerging market equity funds posted a record $64.50 billion in inflows in calendar year 2009, helped by record flows into the BRIC countries, comprising funds in Brazil, Russia, India and China. The Chinese economy’s return to robust growth also boosted Asia (excluding Japan) equity funds, which posted record inflows of $19.10 billion. Emerging market bond funds attracted record inflows of $8.20 billion.

According to the finance ministry, direct-tax receipts during April-December 2009 rose 8.51% from a year earlier to Rs2,50,000 crore. Corporate-tax receipts were up by 13.47% at Rs1,67,000 crore, while income-tax paid by individuals declined by 0.41% at Rs83,178 crore, it said. The Union government has allowed duty-free import of raw sugar to tide over the domestic production shortfall. In the 2008-2009 season ending October 2009, domestic sugar output fell 42% to 15 million tonnes, causing retail sugar prices to more than double. At present, in retail stores, sugar is being sold at Rs42-Rs43 a kg. On Wednesday, 6 January 2010, the Sensex was up 15 points from the previous day’s close, ending the day at 17,701, while the Nifty closed at 5,282, up four points.

According to an HSBC survey, business activity among Indian services companies expanded at its fastest pace in 15 months in December 2009 and helped create more jobs, but the outlook for 2010 is wary. The HSBC Markit Business Activity Index, based on a survey of 400 firms, rose to 57.41 in December, its highest since September 2008, after slowing to 55.20 in November. However, the business expectations sub-index slowed for a second straight month to 65.56 in December, to its lowest level in 10 months. It stood at 71.58 in November. The degree of positive sentiment fell sharply since November, as a greater proportion of companies reported that they expect activity in 12 months’ time to be broadly similar to current levels, HSBC Markit said in its report.

A big decline in pending home sales, which fell in November for the first time in nine months, increased concerns over the housing market. As per US media reports, pending home sales tumbled 16% in November 2009, much steeper than the 5% drop expected and the 3.7% gain logged in October 2009. But factory orders rose 1.1% in November, more than double of what was expected.

On Thursday, 7 January 2010, the Sensex ended the day 85 points down from the previous day’s close, closing at 17,616, while the Nifty closed at 5,263, down 19 points.

According to data released by the government, the food price index rose 18.22% in the 12 months to 26 December 2009, lower than an annual rise of 19.83% in the previous week.

On Friday, 8 January 2010, the Sensex ended the day at 17,540, declining 75 points from the previous day’s close, while the Nifty closed at 5,245, down 18 points, despite positive global cues.

As per reports, prime minister Manmohan Singh said that the economy is expected to grow at 7% this year and may soon return to a sustained high growth path of 9%-10%. Mr Singh pledged that his administration would work to address key constraints in the infrastructure and the agriculture sectors as these were priorities for the government. During trading hours, finance minister Pranab Mukherjee said that the economy could grow at 7.75% in the current fiscal year to end-March.

According to reports, the government may introduce legislation in the budget session of Parliament to make necessary Constitutional amendments and facilitate the launch of the Goods & Services Tax (GST) although the rollout of this comprehensive indirect tax reform from the scheduled date of 1 April 2010 seems unlikely.

HSBC’s Emerging Markets Index climbed to 56.1 in the December-ended quarter from 55.3 in the third quarter, with measures for manufacturing and services output in the period expanding at their fastest pace in eight quarters.

HSBC said that the pace of the recovery appeared to be easing, as the gain in the index was “considerably weaker” than the 4.6-point advance registered in the third quarter. The index is calculated on 19 manufacturing- and service-sector purchasing manager indexes across 14 countries.
 

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