Profit taking may cap gains

The market may edge lower as weak global cues may trigger profit taking after a recent strong rally. Expectations of a second government stimulus package for the economy, hopes of further cut in interest rates by the central bank and buying by foreign funds aided a strong rally in the past few days. The Sensex jumped 1,337.19 points or 15.3% in a short while to 10,076.43 on Thursday, 18 December 2008 from a recent low of 8,739.24 on 2 December 2008.

Interest rate sensitive banking, realty and auto stocks led a near 4% surge in the Sensex on Thursday as a sharp fall in inflation raised the prospect of deeper interest rate cuts in coming weeks. Inflation based on the wholesale price index rose 6.84% in the 12 months to 6 December 2008, below the previous week's annual rise of 8%, data released by the government during trading hours on Thursday, 18 December 2008, showed. Inflation had surged into double digits in early June this year after an increase in state-set retail fuel prices, and peaked at 12.91% on, 2 August 2008, the highest reading since annual numbers in the current data series became available in April 1995.

The Sensex closed above the psychological 10,000 level for the first time in more than a month on Thursday.

Buying by foreign funds this month has also helped market sentiment. Foreign funds bought a net Rs 1681.10 crore of equities this month till, 17 December 2008.

In a second stimulus package to boost growth, the government is likely to provide sops to the automobile, housing and steel sectors. As per reports, the committee of secretaries (CoS) on economic crisis is examining proposals like increasing the limit for low interest-rate housing loans from Rs 20 lakh to Rs 30 lakh, increasing the tax rebate on home loans, reducing car and two-wheeler loan rates by 2% (from the current 12-14%), increasing depreciation and ensuring faster disbursal of central value added tax (Cenvat) credit for the steel sector.

The first stimulus package unveiled by the government on Sunday, 7 December 2008, involved Rs 20,000 crore in additional government expenditure, an across-the-board 4% excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters.

The new package could also include monetary measures such as cuts in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) by the Reserve Bank of India (RBI). CRR, down to 5.5% from 9% in August 2008, impounds cash with RBI while SLR mandates banks to keep a specified proportion of their deposits in government securities.

Japan's Nikkei was trading down 0.7% ahead of decision by Bank of Japan on interest rates. The MSCI index of Asia-Pacific stocks excluding Japan was down 0.8%.

US stocks fell for the second day on Thursday after Standard & Poor's threatened to strip General Electric of its 'AAA' credit rating and slumping oil prices crippled energy shares. The Dow Jones industrial average tumbled 219.35 points, or 2.49%, to end at 8,604.99. The Standard & Poor's 500 Index dropped 19.14 points, or 2.12%, to 885.28. The Nasdaq Composite Index fell 26.94 points, or 1.71%, to 1,552.37.