A close below 5,570 on the Nifty may change the trend

The market closed around 2% higher in the week as the government reiterated its commitment to policy reforms despite the Trinamool Congress (TMC) party’s decision to break away from the ruling UPA (United Progressive Alliance) government. The week also saw the Reserve Bank of India cutting the cash reserve ratio by 25 basis points, a move which would release Rs17,000 crore into the financial system.

The Sensex closed the week at 18,753, up 289 points (1.56%) and the Nifty gained 114 points (2.03%) to 5,691. This makes it the third weekly closing in the positive. The strong uptrend is likely to continue, however, a close below 5,570 on the Nifty may change the trend.

The market closed in the green on Monday on optimism from the government on the reforms front and the RBI’s 25 basis point CRR cut. Profit booking after nine days of gains and a weak trend in the global market led the market lower on Tuesday. Resuming trade after a day’s break, the market settled in the red on Thursday on political concerns at the Centre. The government’s decision to stand by its reforms and support from the Samajwadi Party to the UPA coalition saw the market settling over 2% higher on Friday.

Among the sectoral indices, BSE Realty (up 9%) and BSE Bankex (up 7%) were the top gainers while BSE IT (down 4%) and BSE Healthcare (down 2%) were the main losers.

Jindal Steel & Power (up 15%), BHEL (up 14%), State Bank of India (up 12%), Bharti Airtel (up 9%) and Larsen & Toubro (up 7%) were the key gainers on the Sensex. The major losers were TCS (down 8%), Dr Reddy’s Laboratories (down 6%), Hindustan Unilever, Wipro and Coal India (down 3% each).

The top performers on the Nifty were Punjab National Bank (up 18%), Reliance Infrastructure, Bank of Baroda (up 15% each), Jindal Steel & Power (up 14%) and BHEL (up 13%).  TCS (down 8%), Dr Reddy’s (down 6%), Wipro, HUL and Coal India (down 3%) settled at the bottom of the index.

The RBI, in its mid-term monetary policy review on Monday cut cash reserve ratio (CRR), the amount of deposits banks keep with the central bank) by 25 basis points (bps) or 0.25% to 4.5%. The central bank, however, kept other policy rates like repo rate, reverse repo rate and bank rate unchanged at 8%, 7% and 9%, respectively. The cut in CRR is expected to release Rs17,000 crore into the financial system. With additional liquidity by CRR cut, there is a possibility that banks may reduce the interest rate to attract borrowers.

Moving ahead with steps to revive investor sentiment, finance minister P Chidambaram on Friday cut withholding tax on overseas borrowings to 5% from 20% and approved the Rajiv Gandhi Equity Savings Scheme (RGESS). While the RGESS is aimed at encouraging first time retail investors to invest in stock markets through tax concessions, the cut in withholding tax seeks to lower the cost of foreign borrowings by the Indian companies.

Global markets closed lower in the week amid increasing signs that the global economic slowdown is expanding. A Chinese manufacturing survey pointed to an 11th month of contraction. Japan’s exports fell and Eurozone services and manufacturing output dropped to a 39-month low. Meanwhile, the Bank of Japan earlier this week unexpectedly increased its asset-purchase fund to 55 trillion yen ($704 billion) from 45 trillion yen in a bid to boost growth.