Wild and volatile

Markets may remain bullish as easy money continues to slosh through global bourses

Markets ended the week with a wining streak. This is the eighth continued week markets closed higher against the previous week.

Although the market slid for the first three days of the week, it rebounded on the last trading day, paring early losses. The recovery came on the strong performance in Asian and European markets as stocks in these markets were on the uptrend on strong manufacturing data.

China’s official Manufacturing Purchasing Managers’ Index rose to 55.10 in March from 52 in February. Meanwhile, a separate China manufacturing PMI released by HSBC Holdings Plc and Markit Economics also rose to 57 in March 2010 from 55.8 in the previous month.

Earlier this week, Japan’s industrial production reported a fall of 0.9% in February with the unemployment rate dipping since March 2009. However, US data released on personal spending was encouraging as figures rose for the fifth consecutive month in February.

China’s central bank said that banking liquidity will be maintained to keep the growth momentum steady. Japan’s export orders were at a six-year high, which is a sign of recovery in the manufacturing market in China. The index for new export orders, a leading indicator of Japanese exports, rose to 55.7 from 55.2 in the previous month, hitting the highest level since May 2004. The US Federal Bank has said that interest rates will be kept unchanged as economic growth is on the recovery path and it is still to gain momentum. Closer home, the government came up with its borrowing plan earlier this week. It will sell Rs2.87 trillion ($64 billion) of bonds in the first half of 2010-11—63% of its record full-year target, less than market expectations.

Petrol prices have been raised by 1.1% in major cities that will migrate to Euro IV-complaint fuel to help oil firms to recover the investment made for plant up-gradations.

Diesel prices in leading cities, including Mumbai, would be hiked by Rs0.26 a litre, while in Delhi it will rise by more than Rs2 because of taxes. India’s exports rose an annual 34.8% in February to $16.09 billion, the fourth consecutive rise after 13 straight months of decline. Imports rose 66.4% from a year earlier to $25.06 billion. The trade minister expects exports to rise by 15%-20% in the next year. The National Stock Exchange announced a reduction in the market lot size of a number of stocks in the derivative segment. The market lot size has been revised from a lot of 124 stocks to a lot of 59 stocks. The food price index rose by 16.35% in the week ended 20th March, higher than the annual rise of 16.22% in the previous week. The fuel price index rose 12.75%, higher than an annual rise of 12.68% in the previous week.

Inflation is likely to weigh down industry, thereby slowing down production. High prices have compelled the government to keep subsidised food price unchanged till May. This subsidised food is distributed over 11.5 crore poor families across the nation.

Manufacturing growth in March slowed down from the 20-month record high in February. The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, fell to 57.8 in March from 58.5 in February, which was the strongest since June 2008. A reading above 50 means activity is expanding. A fresh package of incentives worth Rs635 crore has been announced by the government for garment, textile, engineering, & electronics and agricultural products exporters. Prime minister Manmohan Singh has said that elementary education will be free which can be termed as a big-ticket programme from the government to cheer its rural and poor voters. Foreign institutional investors were net purchasers of Rs2,182 crore. Domestic institutional investors were net sellers at Rs 74 crore. 

Markets will maintain a steady uptrend as long as central banks around the world continue with their loose monetary policies, which is channeling ‘hot’ money into various risky assets around the world.

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