Hopes for more measures for economy, industry may keep market buoyant

Expectations of another stimulus package in the interim budget to boost the slowing economy and likely interest rate cuts from the central bank may keep the market firm. The BSE Sensex jumped 209.98 points, or 2.31% to 9,300.86 on Friday, 6 February 2009 boosted by reports the government's forthcoming interim budget on 16 February 2009 might offer tax sops and sector-specific stimulus package. However, global cues will also be closely watched.

The index of industrial production (IIP) data for December 2008 will be released on 11 February 2009. The IIP for the November 2008 stood at 2.4%, compared to contraction of 0.4% in October 2008.

The Commerce Secretary, G.K. Pillai, said on Thursday, 5 February 2009, that government is most likely to announce a third stimulus-like package by the month end to help the various sectors tide over the impact of the current global slowdown and recession. Meanwhile, the Minister of State for Industry, Ashwani Kumar, added the package will contain sector-specific measures, especially for the infrastructure sector and exporters.

The Government had unveiled the first package on 7 December 2008 that called for additional state spending worth about Rs 20,000 crore to spur growth, while cutting value-added tax across the board by 4%. The second one announced on 2 January 2009 provided access to Rs 30,000 crore worth of tax-free bonds to India Infrastructure Finance Co and called for the setting up of a holding company to provide credit worth Rs 25,000 crore to non-banking finance firms.

With exports declining for the third straight month in December 2008 and industrial output also logging a sluggish expansion, the United Progressive Alliance (UPA) Government has been under pressure to unveil another package.

The government will present an interim budget on 16 February 2009 before the parliament elections, which are due by mid-May 2009. As per reports policymakers are examining all options, including tax cuts, aimed at giving a boost to the slowing economy and relief to industry to prevent job cuts.

Inflation slipped to near one-year low in late January 2009, giving more room to the Reserve Bank of India (RBI) to resort to rate cuts to spur the economy. On 27 January 2009 the RBI in its monetary policy review annual said inflation is expected to be below 3% by the end of March 2009.

Inflation measured by the wholesale price index eased to 5.07% in the week ended 24 January 2009 from 5.64% in the previous week, government data released on 5 February 2009 showed. Inflation has now more than halved from a 13-year high of 12.91% hit in August 2008

The RBI has already reduced its leading lending rate to commercial banks, the repurchase rate, by 350 basis points since October 2008 to a historic low of 5.5%. The central bank has also cut the rate at which the bank absorbs funds from the market, the reverse repo, by 200 basis points since December 2008 to 4%.

World economic growth will be 0.5% this year, the weakest postwar pace, with bank losses reaching as much as $2.2 trillion, the International Monetary Fund predicted on 28 January 2009.

On the global front, investors are keenly awaiting a vote on a new version of US President Barack Obama's economic stimulus plan. The US Senate is debating a $920 billion plan next week but it could shrink before being passed.

Meanwhile, caution prevailed ahead of the US jobs data due later on Friday, 6 February 2009. Market watchers said the slight improvement in sentiment towards the US economy, which had helped underpin stocks, could be dampened again if the numbers point to a worse-than-expected deterioration in the job market.

The Obama administration on Monday, 9 February 2009, will release its comprehensive plan to revitalize the financial markets, which is expected to include a new strategy to deal with banks' bad assets and a controversial new program to help troubled homeowners avoid foreclosure