Post Market Commentary-21-April-08

Rally spills over to fifth consecutive trading session

The Indian stock market mirrored gains in global counterparts to posts decent rise, shrugging off a steep 50 basis points hike in cash reserve ratio (CRR) announced by the Reserve Bank of India late on Thursday, 17 April 2008. The market was closed on Friday, 18 April 2008, for a public holiday. With today’s gains, the market has now advanced for fifth straight day.

The unscheduled CRR rate hike comes ahead of RBI's annual credit policy for 2008-09 to be unveiled on 29 April 2008. The RBI joined the government in battling the skyrocketing inflation. The wholesale price index rose 7.14% in the 12 months to 5 April 2008, as per latest data. This was slower than the previous week's annual rise of 7.41%.

CRR is the amount of money banks have to keep with RBI as a percentage of their liabilities (deposits). CRR hike will be introduced in two stages. In the first stage, RBI will raise CRR by 25 basis points to 7.75% on 26 April 2008. Another 25 basis point hike will come into effect from 10 May 2008. As a result of the increase in CRR, about Rs 18,500 crore of' banks resources would be taken out of the system.

Asian markets, which opened before Indian markets, surged on hopes the worst was over for the banking sector, following the top US lender Citigroup’s announcement of a quarterly loss of $5.1 billion and plans to cut another 9,000 jobs.

The 30-share BSE Sensex was up 258.13 points or 1.57% at 16,739.33.

S&P CNX Nifty was up 78.60 points or 1.59% at 5,037

The market breadth was strong. Metal shares staged a strong comeback after the recent correction. Banking shares rose taking the hike in CRR in their stride. However IT pivotals retracted from day’s high hit in early trade on profit booking. They had logged handsome gains last week buoyed by encouraging guidance from IT bellwether Infosys Technoligies.

Sasken Communication Technology surged 32.62% to Rs 190.90 after its board approved a proposal for buyback of shares from open market at a price not exceeding Rs 260 per share for an aggregate amount of Rs 40 crore. The company made this announcement on Saturday, 19 April 2008.

short-selling, that is selling a stock that you do not own, and making profit when the price falls, will be allowed from today, 21 April 2008, following a new set of guidelines and procedures, for both institutional and retail investors. The new system provides for borrowing shares for a seven-day period and using them to settle the sale of shares within a T+2 (trading day + two days) deadline.

Initially, short-selling will be permitted only in 227 stocks that are also traded in the futures and options segment, where deals can be entered into for making transactions at a future date. Later, the stock exchanges may decide to extend short-selling to a larger universe of stocks.