Feb 21, 2009|
Mood darkens on D Street
The Indian markets began their losing streak right from the first day of the week itself. It began with a negative reaction to the interim budget presented on Monday, and continued right through the rest of the week. The benchmark index, the BSE Sensex lost 8.2% during the week, and incidentally turned out to be the worst performer amongst its Asian peers. Chinese markets too lost about 2.6% but relatively that was the best performance in the Asian region.
Germany was the worst performer amongst the global markets with a loss of 9% for the week. That was followed by France and UK which lost 8.2% and 7.2% respectively. The Dow Jones index lost 6.2% during the week. It may be noted that the Dow Jones slumped to its 6-year low on Friday. The low of the last bear market was in October 9, 2002. November 2008 seemed to be the lowest point in financial markets as the panic around the sector’s turmoil was at its peak then. But that does not seem to be the case as the US government’s bailout package has succeeded little in cheering investors.
The fact that the markets were disappointed with the interim budget presented by Mr Pranab Mukherjee was very evident during the week. The budget projected the Indian economy to grow at 7.1% this fiscal. The revenue deficit is seen at 4% (up from estimated 1.1%) and fiscal deficit at 5.5% (higher from the estimated 2.5%). The government raised the allocation for defence to Rs 1,417 bn. Also Mr Mukherjee made note of the fact that despite the severe global financial crisis, India recorded a 45% YoY growth in foreign direct investment (FDI) between April and December 2008, receiving an FDI inflow of US$ 23.3 bn during the period. This even though during FY08, India's FDI inflow was already a robust US$ 32.4 bn.
Inflation numbers for the week ending February 7 stood at 3.9%. This incidentally was the lowest number in the past 14 months. The numbers during the week dropped on account of lower prices of manufactured items. With the wholesale price index (WPI) touching the comfort levels of the RBI, the odds are high that the RBI may now consider cutting the key policy rates.
The week saw some progress on the issue of 3G spectrum allocations as well. As per a leading business daily, the government is looking to set up a committee called the GoM (Group of Ministers), which will help in sorting out the 3G issues. These include issues such as the number of slots and reserve price for the 3G services. The GoM was likely to be constituted by the end of this week. According to the telecom minister, the government is looking to sort out the spectrum options possibly before the end of this fiscal.
|Source: Yahoo Finance
||Source: Yahoo Finance
Movers and shakers during the week
||Change from 52-wk High
| Top gainers during the week (BSE-A Group)
|| 961 /204
|| 469 / 341
|| 760 / 191
|| 0 / 0
|Baja Holding & Invst.
|| 1,100 / 210
| Top losers during the week (BSE-A Group)
||1,202 / 282
|| 4,190 /357
|| 575 /141
|| 90 / 25
|| 1,846 / 426
Experts around the world continued to explicitly express their skepticism regarding the US’s attempts to boost its economy. The Japanese too have said it. The IMF chief also joined the long list of people who believe that perhaps not enough is being done by the US to restore confidence back into the economy. In an interview to French radio, IMF’s Managing Director, Dominique Strauss-Kahn made it clear in no uncertain terms that ridding the banks’ balance sheets of toxic assets should be the utmost priority of the governments. And unless that is done, trust cannot come back.
He was also critical of the policy of launching both fiscal as well as monetary stimuli simultaneously since without free flowing credit, fiscal stimulus will not make a lot of sense. Furthermore, spending money on fiscal stimulus would mean that the governments have less money to spend on monetary stimulus. The end result would most likely turn out to be half baked outcomes that will only prolong the current economic slump.
In line with the uncertain investing environment in other asset classes, gold closed at about US$ 973 per ounce, higher by 3.2%. Indian gold prices moved closer to a high of Rs 16,000 per 10 grams. Crude oil rose 3.3% during the week to close at about US$ 39 per barrel.
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