Post-Market Commentary. Monday, December 08, 2008

Post-stimulus Package
Market loses stimulus steam as Reliance, banks slip


8 Dec 2008, 1805 hrs IST,

It was one of those rare days for the market where every cue indicated a strong day ahead. Equities opened with a gap-up as traders welcomed the government’s fiscal stimulus coupled by Reserve Bank of India’s decision to cut interest rates.

Asian markets, too, were up following a rally in the US. Also, assembly elections sprung a surprise as the Congress party managed to gain voters confidence in Rajasthan, Delhi and Mizoram while the opposition Bhartiya Janata Party held fort in Madhya Pradesh and Chattisgarh.

Realty and infrastructure companies including power and capital goods surge on the government’s fiscal stimulus. Metal stocks also made a comeback on expectations of improvement in the Asian steel market. This saw the BSE Realty Index ended 5.27 per cent higher, BSE Metal Index closed 3.05 per cent up and BSE Power Index advanced 2.78 per cent.

The Indian government also cut fuel prices by slashing petrol prices by Rs 5 per litre and diesel by Rs 2 per litre. Analysts say it will help in easing inflation further and hence options of lower interest rates in coming times could not be ruled out.

“Fiscal stimulus of Rs 3 lakh crore is a welcome long-term plan to boost economy
. Interest rates are likely to fall further and will lead to pick up in demand. The overall outlook is positive,” said Manish Sonthalia, VP-equity strategy, Motilal Oswal.

However, the market couldn’t hold on to the higher levels and pared more than half of its gains as traders booked profits in index-heavy weight like Reliance Industries and other banking majors.

“Institutions seem to have bought in today’s trade while traders may have booked profits. Reliance dragged towards the end putting pressure on the benchmarks,” Sonthalia added.

Bombay Stock Exchange’s Sensex closed at 9,162.62, up 197.42 points or 2.2 per cent. The index slipped from an intra-day high of 9,432.11 to a low of 9095.70.

National Stock Exchange’s Nifty ended at 2784, up 2.56 per cent or 69.6 points. The broader index hit a high of 2861.55 and a low of 2714.70 in the day.

BSE Midcap Index ended 0.36 per cent lower and BSE Smallcap Index closed 0.65 per cent higher.

“This is a gradual base building process. Once markets break out of 9350/2850 (Sensex/Nifty) then we may see levels of 10,300/3200,” he concluded.

Biggest gainers in the Sensex pack were DLF (8.71%), Tata Steel (7.22%), Bharti Airtel (5.34%), HDFC (5.21%) and Reliance Communications (4.97%).

Mahindra & Mahindra (-1.57%), Tata Motors (-0.72%) and Satyam Computer (-0.33%) were the only losers in the 30-share index.

Market breadth on BSE remained positive with 1,384 advances against 1,016 declines.

Over the weekend, the government unveiled Rs 30,700-crore fiscal stimulus package comprising additional spending and excise duty cuts. The package comprises Rs 20,000 crore in additional expenditure, an across-the-board 4 per cent excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters.

In order to help real estate companies tide over the current credit crunch and weak demand, RBI on Saturday cut repo and reverse repo rates by 100 bps each and allowed restructuring of commercial real estate loans up to June 30, 2009.

Meanwhile, European markets were up and US stock futures indicating another positive session. Dow Jones stock futures were up 2.37 per cent, S&P 500 futures gained 2.85 per cent and Nasdaq futures was up 2.29 per cent.

However, the effects of the overseas trend will only be reflected Wednesday, as Indian stock markets are closed Tuesday for Eid-ul-Adha.

via:.E.T