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Hope amidst gloom

Jan 31, 2009

Notwithstanding the gloom all around, the Indian markets performed well during this week. They ruled the roost in the Asian region with the benchmark index, the BSE-Sensex, rising 8.6%, which was the highest among its Asian peers. This was followed by Hong Kong and Singapore, which saw gains of 5.6% and 3.6% respectively. Chinese markets remained closed for most part of the holiday-shortened week.As far as markets in the developed countries are concerned, France led with 4.4% gains during the week. Next was Germany which saw a rise of 3.8%. The US Dow Jones Industrial Index was the only loser with a decline of 0.9% for the week.

In India, the week kicked off with the RBI's third quarter review of the monetary policy. Highlighting the context in which the central bank put forth its views, it went on to emphasise that the loss of confidence in the global financial markets has set off a chain of deleveraging, declining asset values, falling income, contracting demand and rising unemployment.

Importantly, the Reserve Bank of India (RBI) sought attention to the distinction in monetary policy actions in the developed and developing economies of late, which have been the underlying basis for the review. It stated that while the crisis that originated in the financial sector in the US spread almost immediately to Europe, it did not disturb the fundamental strength of banking entities in developing markets. The latter were materially impacted by only three factors - capital flow reversals, drying up of overseas lines of credit and significant deceleration in global trade reducing the demand for exports. Resultantly, the monetary policy actions in emerging markets have also been attuned to real economy problems rather than financial sector problems

The RBI projected a real GDP growth of 7% YoY for FY09. It expressed hope that the sustained performance of the agricultural sector, fiscal stimulus, falling global crude oil prices and softening of domestic input prices such as energy, cement and steel would have a positive impact on industrial production in the coming months.

Inflation, which had previously declined for ten weeks in a row, rose for the second consecutive time this week. The wholesale price index (WPI) based inflation touched 5.6% for the week ended January 17. However, the reversal in the otherwise downward trending inflation could be seen as a temporary spike due to the lag effect of the truckers' strike. In fact, some believe that the recent fuel price cuts will bring about a decline in overall prices in a month's time.

Speaking of fuel price cuts, the week brought some bad news for the oil marketing companies (OMCs) like Indian Oil, HPCL and BPCL. Prior to the price-cut, these companies used to get margins of Rs 8 per litre on petrol and Rs 3 per litre on diesel, which more than compensated the under recoveries of LPG and kerosene. But the fuel price cuts have now taken away that luxury. Ironically, the recent price cut will stimulate demand and increase the under recoveries borne by the OMCs. Moreover, any rise in crude prices would further impact the bottom line of these companies.

A report from the International Labour Organisation during the week sounded off some more alarm bells. It expressed that even in the best case scenario the global economic downturn could see 30 m more people lose their jobs by the end of the year, taking the unemployment rate to decade high levels. The projected worldwide unemployment level of nearly 230 m people in 2009 will be nearly 21% higher than at the end of 2008.

Source: Yahoo FinanceSource: Yahoo Finance

Source: SEBISource: BSE

Source: BSESource: BSE

Movers and shakers during the week
Company 23-Jan-09 30-Jan-09 Change 52-wk High/Low Change from 52-wk High
Top gainers during the week (BSE-A Group)
Spice Communications 284871.8% 77 / 23 -38.0%
Jindal Steel 778 1,03733.3% 2,615 / 517 -60.3%
Indiabulls Securities 172229.2% 0 / 0 NA
Rolta India 749326.3% 360 / 42 -74.2%
Oracle Fin.Serv. 490 60824.2% 1,569 / 405 -61.2%
Top losers during the week (BSE-A Group)
Glenmark Pharma 203 137-32.4% 730 / 126 -81.2%
Asian Paints 923 785-14.9% 1,320 /700 -40.5%
Cummins India 197 168-14.3% 360 / 166 -53.2%
REI Agro 622 571-8.1% 1,795 /355 -68.2%
Biocon Limited 108 102-6.2% 276 /87 -63.2%
Source: Equitymaster

On the international front, the US House passed President Obama's proposed US$ 819 bn stimulus package, aimed at lifting the economy out of recession through tax cuts and more than a US$ 500 bn in new spending.

As much as we liked to believe the decoupling theory, it has been proved over and over again in the last one year that the Indian economy's fate is much intertwined with what is happening in the US and the rest of the world. As such, let's hope that the new US president's preliminary coup paves the way for many more such successes in the days to come.

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