Government's stimulus package, RBI's rate cut may propel bourses

Key benchmark indices are likely to see a gap-up opening boosted by the blend of government's fiscal spending proposals and the Reserve Bank of India's (RBI) interest rate cuts announced over the weekend to counter economic slowdown. The SGX November 2008 Nifty futures jumped 102 points. Global cues were strong.

The government on Sunday, 7 December 2008, unveiled a Rs 30,700-crore fiscal stimulus package mainly comprising additional spending and excise duty cuts aimed at boosting consumption. The stimulus package has Rs 20,000 crore in additional expenditure, an across-the-board 4% excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters.

In addition, the government hopes to precipitate infrastructure projects worth Rs 100,000 crore through faster clearances of public-private partnership projects, and ensure their easier financing by way of a tax break on fund raising by the India Infrastructure Finance Company, a specialist lender to the infrastructure sector.

The government will also take steps to ensure that already budgeted expenditure of Rs 300,000 crore will actually be spent over the next four months of the current fiscal to end-March 2009, as it increasingly resorts to pump-priming to shore up the economy that continues to face headwinds from the global financial market turmoil.

The Reserve Bank of India on 6 December 2008, announced a 100 basis points cut each in the reverse repo rate and the repo rate. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks. Both reductions are effective from Monday, 8 December 2008.

The RBI said it was also taking other steps to improve liquidity and shore up economic activity.

Meanwhile, the election results from four states due today, 8 December 2008 could reveal the political mood of an India. The elections, mostly in central and west India, come before a national vote in early 2009 that will pit the ruling Congress-led coalition against the main opposition alliance led by Bharatiya Janata Party.

Asian markets rose today, 8 December 2008 with financials leading the charge on hopes of further support measures from global central banks. China's Shanghai Composite was up 1.27% or 25.61 points at 2,044.27, Hong Kong's Hang Seng gained 4.96% or 686.42 points at 14,532.51, Japan's Nikkei rose 2.57% or 203.20 points at 8,120.71, South Korea's Seoul Composite added 4.29% or 44.11 points at 1,072.24 and Taiwan's Taiwan Weighted advanced 3.67% or 154.87 points at 4,379.94.

US stocks jumped on Friday, 5 December 2008 as investors bet that a steep drop in oil prices will boost consumer spending, lifting retail stocks and offsetting government data showing half a million jobs were lost in November 2008. The Dow Jones Industrial Average gained 259.18 points, or 3.09%, to 8,635.42, the Standard & Poor's 500 index climbed 30.85 points, or 3.65%, to 876.07 and the Nasdaq Composite index rose 63.75 points, or 4.41%, to 1,509.31.

Back home, selling pressure in index heavyweight Reliance Industries (RIL), metal and IT stocks pulled the market lower on Friday, 5 December 2008 on concerns about the weakening global economy. The BSE 30-share Sensex was down 264.55 points, or 2.87%, to 8,965.20 and the S&P CNX Nifty was down 73.60 points, or 2.64%, to 2,714.40, on that day.

Foreign institutional investors (FIIs) were net sellers worth Rs 4.52 crore while mutual funds sold shares worth Rs 184.02 crore on Friday, 5 December 2008, according to provisional data on NSE.

With few signs of immediate economic improvement the US crude for January 2009 delivery rose $1.59 to $42.40 a barrel today, 8 December 2008 after Friday's close (5 December 2008) at $40.81, the lowest settlement since December 2004.