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RBI's hand fails to cheer investors - Views on News from Equitymaster
 
 
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  • Mar 7, 2009

    RBI's hand fails to cheer investors

    India's benchmark index, the BSE-Sensex, put up a dismal performance during the week. It saw a decline of 6.4%, second only to Hong Kong whose markets declined by 6.9%. Japan too fell 5.2%. China threw up a surprise amongst the markets in the Asian region, gaining a robust 5.3% during the week. This was largely on the back of hopes that the country's stimulus package will enable better economic growth.

    Worries over General Motors and Citigroup pushed the US Dow Jones Industrial Index and S&P 500 lower. The Dow Jones declined 6.2% during the week. But this was not greater than the UK which saw its benchmark index FTSE decline by a hefty 7.8%, sending it plunging downwards.

    As per reports released during the week, infrastructure growth for six industries in the month of January stood at 1.4% YoY. These six industries include crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel. The reason behind the same has been the lower production levels in the sectors barring cement. During January 2008, these sectors had reported a growth of 3.6% YoY. However, during the 10-month period (April 2008 to January 2009) the growth stood at 3.2% YoY as against 5.7% YoY in the corresponding period in the previous year.

    India's export numbers for the month of January 2009 declined by 15.9% YoY, thus marking a drop in exports for the fourth consecutive month. The import figures have dropped as well. It may be noted that imports have dropped for the first time this fiscal. The monthly trade deficit stood at US$ 6.1 bn. However, for the April to January period, the country's cumulative exports grew by 13.2% YoY. This is in sharp contrast to the growth of 30.9% YoY during the first half of the fiscal. On the other hand imports for the period between April and January went up by 25.3% YoY.

    The inflation numbers hit a seven year low. For the week ended February 21, it stood at 3.03% as against 3.36% a week ago. The inflation has declined mainly on account of lower prices of food items. Food inflation declined from a 10 year high of 11.5% in the beginning of the year to 8.24% in the week under consideration, on back of higher base effect and easing prices of fruits, vegetables and certain cereals. Furthermore reduction in prices of metals and transport equipments also aided the decline.

    Having exhausted almost all means of fiscal stimulus and encouraged by the drop in inflation, the week saw the RBI making a final attempt at reviving the economy with another monetary stimulus. The central bank cut the benchmark interest rates - repo and reverse repo rates - for the fifth time this Wednesday since October 2008 after economic growth slowed to a five-year low. While the repo rate was dropped to a record low of 5% from 5.5%, the reverse repo rate was lowered to 3.5% from 4%.

    The rupee has had a rough ride so far and the deepening global financial crisis has only accelerated its fall. The rupee ended the week at 51.72 per US dollar as the weak stock markets and fears of capital outflows took centrestage. FIIs, who had contributed to the blazing journey of the Sensex to 21,000 levels, have been pulling out money from Indian equities in droves ever since the crisis erupted. Besides this, the deteriorating fiscal deficit has been another reason that has exerted considerable pressure on the Indian currency in the past one year.

    Auto sales numbers of some of the leading players in the domestic market raised hopes that the worst may indeed be over for the industry. While Maruti saw its domestic sales jump by 19% in February over same month last year, Hero Honda, leader in the two-wheeler pack, witnessed a sharp 24% jump in sales during the same period.

    Source: Yahoo Finance Source: Yahoo Finance

    Source: SEBI Source: BSE

    Source: BSE Source: BSE

    Movers and shakers during the week
    Company 27-Feb-09 6-Mar-09 Change 52-wk High/Low Change from 52-wk High
    Top gainers during the week (BSE-A Group)
    Patni Computers 98 109 12.0% 290 / 94 -62.3%
    Akurti City 880 973 10.6% 1,135 / 550 -14.3%
    Hindustan Zinc 321 352 9.6% 743 / 215 -52.6%
    Mphasis Ltd. 168 183 8.9% 254 / 119 -27.8%
    Cipla 191 203 6.4% 241 / 146 -15.6%
    Top losers during the week (BSE-A Group)
    Rolta India 89 49 -44.9% 344 / 42 -85.8%
    Aban Offshore 316 231 -26.8% 4,190 / 228 -94.5%
    Indian Bank 87 70 -19.7% 188 / 66 -63.0%
    Gammon India 62 51 -18.7% 470 / 47 -89.2%
    Alstom Projects 312 254 -18.7% 730 / 191 -65.2%
    Source: Equitymaster

    The scenario in the US continued to deteriorate at a fast pace. That was further exemplified by the fact that US benchmark Dow Jones Industrial Index ended the week below the psychologically crucial level of 7,000 for the first time since 1997 amidst concerns of deepening recession. The concerns were further stoked by a massive US$ 62 bn quarterly loss reported at the troubled financial behemoth AIG, the biggest quarterly loss ever in the US corporate history.

    The loss also forced the US government to provide extra US$ 30 bn funding to the troubled giant on top of the US$ 40 bn that it has already received through the TARP program. Investors of course took this event as harbinger of things to come and thus made a hasty retreat from stocks. With everyone on the edge of their seats, what the future has in store remains to be seen.

     

     

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