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Buoyancy amidst slowdown - Views on News from Equitymaster
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  • Feb 14, 2009

    Buoyancy amidst slowdown

    The Indian benchmark index, the BSE-Sensex, saw a healthy 3.6% rise during the week. This was largely on the back of expectations that the RBI may cut interest rates further to boost economic growth. This performance was just second to China in the Asian region, where the Shanghai Composite gained a robust 6.4%.

    Markets in the developed countries performed poorly. Germany led the losers in the European region with a fall of about 5%. The US Dow Jones Industrial Average performed the worst with a decline of 5.2%.

    Back in India, the Index of Industrial Production (IIP) numbers were released during the week. IIP for December 2008 fell by 2% YoY as against a growth of 8.6% YoY during the same period last year. This was mainly on account of the current economic slowdown. The manufacturing sector registered a negative growth of 2.5% YoY in December 2008 as against a rise of 8.6% YoY during the same period last year. Mining output and electricity generation grew only by 1% and 1.6% as against a growth of 5% and 3.8% respectively. Consumer durables production fell by around 12.8%.

    As for inflation, it declined to 4.39% during the week ended January 31, 2009 from 5.07% a week ago, mainly on account of reduction in prices of fuel and some food articles. Incidentally inflation stood at 4.74% a year ago. The inflation level is now within the tolerance level of the RBI.

    The Railway minister presented the interim railway budget yesterday. While some rate cuts were announced in passenger tariffs, freight rates were kept unchanged. The ministry plans to start 43 new trains in FY10. Railway freight revenue has registered an average growth of 8% over the last five years. During FY08, freight transport stood at 794 m tonnes (MT), up by 9% YoY. The operating ratio for FY09 has been projected at 88% and for FY10 at 89%. The ministry plans to invest around Rs 2,300 bn over the 11th Five Year Plan, having invested Rs 368 bn during FY09.

    The Central Statistical Organisation (CSO), in its advance estimates, projected the Indian economic growth to slow down to 7.1% in the current fiscal against 9% in 2007-08. It felt that while manufacturing, agriculture, power, construction and financial services are likely to pull down growth, services including trade and hotels as well as mining are projected to give a push to the economy.

    Source: Yahoo Finance Source: Yahoo Finance

    Source: SEBI Source: BSE

    Source: BSE Source: BSE

    Movers and shakers during the week
    Company 6-Feb-09 13-Feb-09 Change 52-wk High/Low Change from 52-wk High
    Top gainers during the week (BSE-A Group)
    Educomp Solutions 1,401 2,097 49.7% 4,340 / 1,331 -51.7%
    Lanco Infratech 112 137 22.7% 570 / 83 -76.0%
    RCF 33 40 22.4% 90 / 25 -55.6%
    Spice Comm. 72 87 20.0% 84 / 23 3.5%
    IVRCL Infra. 106 127 19.5% 485 / 57 -73.9%
    Top losers during the week (BSE-A Group)
    Indiabulls Fin. Serv. 130 110 -15.4% 684 /78 -84.0%
    REI Agro 64 57 -10.7% 179 / 36 -68.2%
    HCL Tech 126 114 -9.3% 315 / 102 -63.7%
    Phoenix Mills 61 57 -7.6% 465 / 48 -87.8%
    Dr. Reddy's 459 431 -6.1% 730 / 387 -40.9%
    Source: Equitymaster

    On the global front, the US Senate voted for putting stricter limits on banks and other recipients of taxpayer money through the Troubled Assets Relief Program (TARP) that want to hire high-skilled workers from overseas under the H-1B visa program. However, the amendment has to go for reconciliation (a legislative process) before going to the Congress and finally to the President, before it becomes policy. Such a policy would hurt the fortunes of Indian IT firms such as Infosys and Wipro, as their employees constitute a large chunk of the H-1B visa list.

    After considerable dilly dallying between the Democrats and the Republicans, the US Senate finally arrived at a tentative stimulus package - of around US$ 800 bn - to safeguard their economy from going further downhill. This package would include tax cuts for individuals and business, aid to cash-strapped states and billions of dollars in new spending, jobless benefits, food aid for the poor, and road and bridge construction, among other things.

    Also during the week, US Treasury Secretary Tim Geithner presented a new rescue plan to restart the frozen credit markets and strengthen the balance sheets of the troubled banks. Needless to say, Geithner's plan was seen as a huge letdown. Experts are of the opinion that the plan falls woefully short on both the fronts. Neither does it talk of making enough capital available to recapitalise the banks nor does it give a detailed outline of how exactly some of the toxic assets clogging banks' balance sheets will be removed. .

    On the former, Giethner's plan leaves around US$ 120 bn for boosting the capital of banks, an amount that many people feel will not be enough to save even one large bank let alone a few banks. Although some ideas did meet with approval, sadly, they were few and far in between. Thus, if the reactions are anything to go by, looks like the US Treasury Secretary will have to come back to the drawing board pretty soon.

    The turmoil the world over ensured a 6.6% fall in crude oil prices from about US$ 40 a barrel to US$ 37.5 a barrel. The flight to safety continued as it sent gold higher by 3.3% from US$ 911 to US$ 942 per ounce during the week. With billions of dollars being pumped into countries by their respective governments, a hedge against inflation seems to be much sought after.



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