The Hindu Business Line : Stimulus package peps up bourses

Fuel prices were cut in the wake of falling oil prices. The Government reduced Central value-added tax across the board by four per cent. It also announced an expenditure of Rs 300,000 crore in the next four months, among other measures, to stimulate the economy.

The RBI too, brought down key lending rates (repo rates) by 100 bps to 6.5 per cent and the reverse repo rate to 5 per cent.

Sustained up move

Markets closed positive for most of the week, though it had some share of intra-day drops.

Positive cues from global markets provided the much-needed support to our bourses, so much so that the Nifty crossed the crucial 2900-mark mid-week, and remained above that for the rest of the week.

The primary drivers however were the government’s planned extra spending and duty cuts besides RBI’s rate cut.

Further, hopes that the ailing US auto industry will get a $15 billion lifeline also kept the markets on an upswing in the early part of the week. That however was short-lived as news surfaced later in the week with the failure of the auto bailout and job cuts by Bank of America.

On the home front, October’s Index of Industrial Production showed a decline of 0.4 per cent, the first time in 15 years.

However, tight liquidity situations, demand and production slowdowns appeared to have already been discounted by the markets, which soon recovered aided by expectations of further stimulus packages.

Inflation for the week was at 8 per cent, down by 0.4 per cent from last week’s figure. December has also seen a net inflow in FII investments with gross purchases of Rs 14,146 crore and a sale of Rs 12,861 crore.

Sector indices

Rate cuts and other incentives announced by the RBI for housing loans and classification of housing loans as priority sector lending up to Rs 20 lakh led to a strong performance across real estate stocks, with the BSE realty index climbing 26 per cent. Banking stocks as well were in the green on hopes of revival in lending; the BSE Bankex gained 7.5 per cent.

The BSE Mid-Cap and Small-Cap indices rallied by 5 per cent and 6 per cent respectively. Metals also ended on a positive note.

Global markets

Indian markets were among the few posting a gain among major global indices. The collapse of the auto aid package drove down the FTSE by 2.9 per cent on Friday.

However, the US markets remain hopeful that a compromise may be reached, with the Dow, S&P and Nasdaq marginally up.

On the Asian scene, the Nikkei dropped 5.6 per cent, wiping out almost half the gains it had posted earlier in the week.

The yen also reached a high of 89 against the dollar, a level last seen 13 years ago, hitting exporters. The Hang Seng index also lost about half its week’s gains, ending up by 6.6 per cent at the close.

Commodities

Gold prices surged and surpassed platinum late last week as the dollar turned weaker against the euro and the yen.

Standard gold prices touched $812.5, a gain of 5.5 per cent for the week.

Oil and industrial metals took a hit with the failure of the auto bailout. Oil prices fell on Friday by 4 per cent, but ended the week higher at $46.28.

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