Sensex drops 174 points, ends at 16,720

Weak global cues, along with speculation over a possible tightening of monetary policy pulled down Indian markets

Speculation that the central bank would tighten monetary policy to help stem rising prices ruled the Indian markets throughout the day, in addition to weak global cues. The Sensex declined 174 points from the previous day’s close, ending the day at 16,720, while the Nifty slipped 54 points to 4,988.

During the day, Suzlon Energy announced the completion of payment of its entire outstanding acquisition loan facility of around $780 million. The stock was down 1%.

Indowind Energy shot up 6% on reports that the firm saw 70% revenue growth in the fiscal year 2010.

Fortis Healthcare was up 1% after the company completed the acquisition of Greenfield Hospitals Division of Wockhardt Hospitals comprising 10 hospitals in the metro cities of Mumbai, Bengaluru and Kolkata (including two under construction), on a going-concern basis.

Smartlink Network Systems said that the shares of the company were de-listed from the Bangalore Stock Exchange with effect from 15 December 2009. The stock was down 4%.

Lanco Infratech was down 3% after the company fixed 5 January 2010 as the record date for giving effect to the sub-division of one fully paid-up equity share of face value of Rs10 each into ten shares (of face value of Rs1), each fully paid up.

During the day, the finance ministry said in a report tabled in Parliament that current levels of capital inflows into India can be managed without “significant costs”. The report also said that raising interest rates could attract more capital into India and complicate policymaking. The finance ministry also said that the central bank was facing a dilemma on timing its exit from an easy money policy, and the challenge was to support the recovery of the economy without compromising on price stability. The country needs to focus on expenditure reforms to cut its high fiscal deficit, the finance ministry noted in the report.

The government is aiming to cut its fiscal deficit to 5.5% of gross domestic product in the fiscal year 2010-11 (April-March), from 6.8% estimated for 2009-10.

The report said pressure on food prices was likely to continue and food imports could help stem price rises. The economy could grow more than 7.75% in the fiscal year to March 2010, the finance ministry said. The ministry further said that the economic survey 2008-09 in July had projected GDP growth could be around 7%, with an allowance of 0.75 percentage points on either side. “With the latest GDP data on September 2009 quarter being higher at 7.9%, the growth outlook for the next two quarters and for the whole year is likely to be in the upper bound of the range predicted, and may even exceed it,” the report said.

Finance minister Pranab Mukherjee said that containing inflation is high on the government’s agenda and the government is monitoring the price situation.

Meanwhile, the International Monetary Fund said that a fragile global economic recovery is underway. It said that a double-dip recession is unlikely. IMF spokeswoman Caroline Atkinson said that questions remained about the sustainability of the recovery, which has so far been driven by policy actions by various governments and central banks.

During the day, key Asian benchmark indices in China, Hong Kong, Indonesia, Japan, South Korea and Singapore fell by between 0.05%-2.05% but the index in Taiwan rose 0.15%. The Bank of Japan unanimously voted to keep its overnight call-rate target at 0.1% as widely expected, and left its overall assessment of Japan’s economy unchanged, and emphasised the need to pull Japan out of deflation—perhaps laying the groundwork for more easing ahead.

According to media reports, the Ifo Institute’s closely watched indicator of German business sentiment rose to 94.7 in December from 93.9 in November. Economists had forecast a rise to 94.5.

Meanwhile, France’s business sentiment index declined to 89 in December from 90 in November, according to the monthly survey by the French National Institute of Statistics and Economic Studies (Insee). Analysts expected the index to be at 91 in December. Insee said that the business climate indicator remains below its long-term average.

On Thursday, 17 December 2009, the Dow Jones Industrial Average slipped 133 points while the S&P 500 and Nasdaq Composite declined 13 points and 27 points respectively as jobless claims rose more than expected.

Jobless claims unexpectedly rose 7,000 to a seasonally adjusted 4,80,000, in the week ended 12 December 2009.

In premarket trading, the Dow was trading 33 points higher.

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