Whatever we expect with confidence becomes our own self-fulfilling prophecy.
Mr. Ben S. Bernanke & Co. has done what was expected of them. The Federal Reserve has cut its key short-term rate by a quarter percentage point to protect the US economy from the housing slowdown and a tight credit market. Global markets are naturally happy, but not as much as they were the last time around. The reason is there may not be any more Fed rate cuts in the near term, as the US central bank is also worried about inflation. That perhaps explains the tempered optimism in the US as well other markets. The rally in Asian markets this morning is not that spectacular.
We expect a spike in our market when the opening bell rings, but do not rule out some cooling later on, as most of the big events are now out of the way. FII buying too seems to have slowed in the past couple of days. The market will remain choppy with lower volumes in the near term due to lack of fresh catalysts and a possible slowdown in overseas capital inflows. Gains this month may not be as phenomenal as the outperforming October, which was not just the best this year but the best October in a decade.
Sugar stocks could fall after the UP Government announced a state advised price (SAP) of Rs125 per quintal for cane. This is likely to hit sugar mills in the state, as they will have to pay Rs12.5/kg to farmers as against the retail sugar price of Rs14/kg. However, in another news, the Allahabad High Court has granted a major reprieve to UP sugar mills, permitting them to discharge 25% of their outstanding cane arrears within 5-6 weeks time. Watch out for auto stocks as they will announce their monthly sales volume. Oil and airline companies will also be in the limelight as crude oil nears the $100 per barrel mark.
US stocks rallied and bonds slumped on Wednesday after the Fed cut a key short-term interest rate by a quarter percentage point and indicated that it doesn't need to cut rates again as it could start fueling inflation.
Microsoft and Intel led gains on prospects that consumers will keep spending. Exxon Mobil advanced as oil rose to a record $94.74 a barrel. Newmont Mining, the second-largest gold producer, jumped the most in six years after profit doubled.
The S&P 500 added 18.36 points, or 1.2%, to 1,549.38. The Dow Jones Industrial Average increased 137.54 points, or 1%, to 13,930.01. The Nasdaq advanced 42.41 points, or 1.5%, to 2,859.12. Almost four stocks rose for every one that fell on the New York Stock Exchange.
FOMC, the US central bank's policy setting arm cut the fed funds rate by 25 basis points to 4.5%. But, the decision was not unanimous, with Kansas City Fed President Thomas M. Hoenig preferring no change.
The cut in October follows a half-point cut made on Sept. 18. That cut was aimed at easing the strain in credit markets and to try and prevent the financial market crisis and housing sector collapse from sending the US economy into a recession.
Treasury prices slumped on bets that the Fed is not going to cut rates again anytime soon. The selloff boosted the yield on the benchmark 10-year note to 4.47% from 4.38% late on Tuesday.
US light crude oil for December delivery briefly hit an intra-day record high of $94.74 a barrel on the New York Mercantile Exchange, before pulling back a bit to settle at a new record of $94.53. Crude was quoting above US$96 per barrel in Asian trading.
Oil prices had already risen after the government's weekly report showed a surprise drop in crude inventories, but the gains accelerated after the Fed announcement.
COMEX gold for December delivery settled at $795.30 an ounce in New York and hit a high of $800.80 in electronic trading, a close to 27-year high. In currency trading, the dollar fell to another record low against the euro and inched higher versus the yen.
The US economy grew at a 3.9% annual rate in the third quarter, the government said, after having grown at a 3.8% annual rate last quarter. Economists had predicted a reading of 3.1%.
The GDP price deflator, the report's inflation component, rose at a pace of 0.8%, much slower than what economists were forecasting. The more closely-watched "core" PCE deflator rose at an annual rate of 1.8%, faster than the previous quarter but still within the Fed's comfort zone.
European shares closed higher. The pan-European Dow Jones Stoxx 600 index rose 0.9% to 388.43. The French CAC-40 rose 0.8% to 5,847.95, while the UK's FTSE 100 added 0.9% to 6,721.60 and the German DAX 30 climbed 0.5% to 8,019.22.
Brazilian stocks hit a record high while Mexican stocks finished lower. Brazil's Bovespa rose 1.5% to 65,317.70, its third record close this week. Mexico's IPC fell 1% to 31,458.67. Argentina's Merval index rose 0.5% to 2,351.44 while Chile's IPSA lost 0.8% to end at 3,451.18.
Asian stocks rose after the Fed rate cut and on a government report that the US economic growth accelerated in the third quarter of 2007, bolstering confidence in the region's biggest export market. Canon was set for its biggest advance in two months. BHP Billiton climbed after crude jumped the most since March.
The Morgan Stanley Capital International Asia-Pacific Index added 0.8% to 172.73 as of 11:01 a.m. in Tokyo, set for a record. The Nikkei 225 Stock Average advanced 0.8% to 16,863.83. Stock benchmarks rose across the region, except in China. The Philippines' market is closed for a holiday.
After opening with strong gains market ended on a flat note before the Fed meet. A strong first half was followed by a range bound and later in the session also profit booking dragged the key indices from their days high to end the day with modest gains. However, major support for the market was provided by the Metal, Banking and the PSU stocks. Broader indices i.e. Mid-Cap and the Small-Cap index also gained over 1% each.
Finally, the 30-share Sensex gained 54 points to close at 19,837. Nifty index added 31 points to close at 5,900.
TCS slipped 1.1% to Rs1037. Tata Sons sold 1% stake in the company via block deal. The scrip touched an intra-day high of Rs1063 and a low of Rs1017 and recorded volumes of over 1,00,00,000 shares on NSE.
Tata Steel advanced 0.8% to Rs908 after the company announced that they signed MoU with Vietnam Steel Corporation. The scrip touched an intra-day high of Rs922 and a low of Rs896 and recorded volumes of over 11,00,000 shares on NSE.
VSNL gained 1.5% to Rs575. The company declared its Q2 result with net profit at Rs614mn (down 42.9%) and revenue at Rs9.88bn (down 1.4%). The scrip has touched an intra-day high of Rs587 and a low of Rs567 and has recorded volumes of over 3,00,000 shares on NSE.
Reliance Energy advanced by 4.5% to Rs1869 after reports stated that the company approved a proposal to transfer its infrastructure projects to a wholly owned subsidiary. The scrip touched an intra-day high of Rs1899 and a low of Rs1800 and has recorded volumes of over 43,00,000 shares on NSE.
ONGC advanced by 2.2% to Rs1245 after the company announced that they would invest Rs4,000cr to upgrade Mumbai high North. The scrip touched an intra-day high of Rs1264 and a low of Rs1220 and recorded volumes of over 18,00,000 shares on NSE.
Glemark Pharmaceuticals advanced by 3.8% to Rs492 after the company licensed out experimental drug developed to Eli Lilly in a deal potentially worth US$350mn. The scrip touched an intra-day high of Rs538 and a low of Rs490 and recorded volumes of over 16,00,000 shares on NSE.
Videocon Industries gained 2.5% to Rs378 after the Group announced that they would bid for
CESC advanced by 1% to Rs580 after the company announced their Q2 net profit rose 47.6% to Rs930mn and net sales were at Rs7.3bn (up 8.1%). The scrip touched an intra-day high of Rs595 and a low of Rs574 and recorded volumes of over 3,00,000 shares on NSE.
Stocks in News:
L&T set to win Rs10bn contract for railway factory at Chhapra district in Bihar.
Tata Steel signs a MoU with Vietnam Steel Corporation for a cold rolling mill complex.
IOC plans to retail CNG via its chain of petrol pumps.
CISCO and Wipro form a JV to develop IT solutions across the globe.
UB holdings to raise Rs13.2bn by November end.
The Videocon Group plans to bid for the new Greenfield airport coming up at Navi Mumbai.
ONGC may partner Hinduja for a refinery to be constructed in AP.
Marico buys South African consumer arm of Enaleni Pharmaceuticals for Rs520mn.
SBI plans to hire 3,000 officers for soft recovery.
Patni stake sale was called off over differences over management control.
Ashok Leyland plans Rs40bn capex for building capacity, developing products and upgrading technology.
Indonesian state-run Krakatau Steel is considering a strategic alliance with four steel companies including Essar and Ispat.
Gujrat State Petroleum Corp (GSPC) may sell 30% equity in KG block.
Exide Industries acquires lead smelting firm in Pune.
Pyramid Saimira acquires Texasbased FunAsia.
The RBI and the finance ministry working on a concept paper to introduce sterilisation tax and auctioning of limited foreign loans to stem the Dollar flows.
Maharashtra Government to remove octroi across the state except Mumbai.
The Central Board of Trustees is likely to revive discussion on investing up to 5% of corpus in stock market.
Oil companies to hike aviation turbine fuel prices between 4% and 6% from Wednesday night.
Telecom Engineering Centre (TEC) to recommend a steep increase in spectrum usage charges for GSM mobile service providers for seeking additional spectrum.
The central government’s fiscal deficit for the first six months fell to 53.8% of the budget target from last year’s 58.2%.
NCAER raises GDP growth target to 8.9% from 8.5% estimated previously.
UP sugar mills have been granted a major reprieve by the HC, permitting them to discharge 25% of their outstanding cane arrears within 5-6 weeks time.