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Positives overweigh the negatives

Feb 28, 2009

Indian indices saw a marginal change during the week. The benchmark index, the BSE-Sensex, rose a modest 0.5%. But that was relatively better off than its neighbour - China saw its benchmark index plunge by 7.9%. Despite the tumultuous times, Japanese markets put on a decent show by rising 2.1% during the week.Markets in the US and European region were marked by ubiquitous declines. While Germany saw the biggest decline of 4.3%, US's benchmark index fell 4.1%. Markets in France and the UK too saw declines.

Inflation for the week ending February 14 fell further to 3.36% as compared to 3.92% in the week ending February 7. The numbers were lower due to price cuts in fuel, primary articles and the manufactured goods. With inflation within the Reserve Bank of India's (RBI) comfort zone, the possibility of cut in key rates continued to remain high.

The government during the week announced that the 4% excise duty cut across-the-board will continue beyond March 31, 2009. Also the excise duty on cement would be reduced to 8% from 10%, while service tax will be cut from 12% to 10%. Further, customs duty exemption on naphtha extended beyond March 31, 2009, to provide relief to the power sector. The measures would surely help the industries to mitigate at least some of the pressure of the economic slowdown.

But as far as the government is concerned, there was little rationale behind indulging in another round of fiscal stimulus, even as global rating agency S&P lowered its outlook on India. Fiscal deficit as a percentage of GDP, a measure of how much more the government spends over what it earns, is already expected to touch 6%. And with the latest tax cuts thrown in, it may rise further to 6.5%. This is without considering the off-balance sheet liabilities like oil and fertilizer bonds.

The Indian rupee reached its all time low level against the greenback. It has tumbled to 51.32 against the US dollar. Growing concerns about the continued loose fiscal policy, S&P's downgrading of the nation's credit rating and poor economic growth are the chief reasons for this slump. Furthermore, dollar demand from importers weighed heavy on the rupee.

On India's infrastructure front, it was not surprisingly reported that, most of the projects have missed targets set by the government for the period April to December 2008. These include projects in power, coal mining, petroleum and natural gas, roads and railways. As reported in a leading business daily, the National Highway Authority of India (NHAI) missed the target of widening and strengthening 2,261 km of roads by 30%. Natural gas output was short of the goal of 30,019 m cubic metres by 5,017. Similarly, fertilizer production was 10% below the target.

India's GDP growth slowed down to 5.3% YoY during the quarter ended December 2008. This was below the 6.1% growth projected by 21 economists on Bloomberg and is the slowest pace of growth since the last quarter of 2003. Given that growth has slowed despite the stimulus packages announced by the government leaves the task now to the RBI, which is expected to bring down interest rates further to prop up demand, thereby stimulating the economy. To add to the woes, the job situation in international markets further worsened. As per a leading business daily, about 20,000 Indians have returned home after losing their jobs overseas due to the global economic crisis.

While India cannot escape a rap on the knuckles with fiscal stimuli of the order of a few percentage of GDP, China unleashed spending of more than 25% of its GDP. However unlike India, China runs a huge fiscal as well as current account surplus, giving it enough room to loosen its purse strings. And it is doing just that. As per a Bloomberg report, the dragon nation has drawn up a plan to strengthen its domestic auto industry and turn few of its home grown brands into world beaters.

Source: Yahoo FinanceSource: Yahoo Finance

Source: SEBISource: BSE

Source: BSESource: BSE

Movers and shakers during the week
Company20-Feb-0927-Feb-09Change52-wk High/LowChange from 52-wk High
Top gainers during the week (BSE-A Group)
Piramal Healthcare 173 208 19.9% 379 / 164 -45.1%
Bharat Forge 79 95 19.2% 310 / 69 -69.5%
Century Ind 151 179 19.1% 890 / 113 -79.9%
United Breweries 80 90 12.8% 260 / 68 -65.4%
Mphasis Ltd 150 168 12.3% 254 / 119 -33.7%
Top losers during the week (BSE-A Group)
Ranbaxy 207 162 -21.7% 613 / 160 -73.6%
Sintex Industries 108 89 -17.9% 491 /87 -82.0%
Allahabad Bank 46 40 -13.3% 109 / 39 -63.2%
Indian Bank 100 87 -13.1% 210 / 78 -58.7%
Pantaloon 145 126 -13.0% 550 /125 -77.1%
Source: Equitymaster

But Asian economies on the whole, like their western counterparts, continue to perform badly. As reported in the International Herald Tribune (IHT), Japan's economy shrank an annualized 12.7% during the last quarter of 2008. Further, Japanese exports slumped 46% from a year earlier and imports fell 32%, mirroring the trend witnessed recently in other Asian countries such as China and Taiwan. As a result of waning exports, Japan's trade deficit has ballooned to a record US$ 9.8 bn. With demand declining across the globe, Japanese manufacturers have been hit hard as a result of which production has been slashed at a rapid pace. This has been more than evident in industrial output, which has slipped 10% in January. In an economy whose growth largely depends on exports, clearly things are not likely to improve unless some semblance of a recovery begins to manifest in the global economy.

After the recent buoyancy in prices, gold fell by about 6% during the week. This as the dollar strengthened to the highest level since April 2006 and thus taking away from the attractiveness of gold. Crude oil on the other hand saw a weekly gain of about 11% to finally close at US$ 44.8 per barrel yesterday

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