It's better to do nothing with your money than something you don't understand.
The banks will have to do something with the money they hold. The RBI has finally blinked and cut short-term rates by 50 bps in its continuing bid to nudge banks to lower borrowing costs.
Policy rates have already been slashed considerably since October. Banks too have done their bit, especially the nationalised ones. Private banks have been a little reluctant in cutting rates. The moot point is whether banks are willing to give up lazy banking and start lending again in a big way. A reverse repo rate below 4% should discourage banks from parking funds with the RBI.
But, the real issue is not with supply (liquidity), but the sluggish demand. Customers and banks continue to be risk averse. It is the crisis of confidence which is plaguing the markets, not only in India but across the world. Unless there is a reversal in this trend, we are unlikely to see a sustained advance in stocks.
Coming to today’s market, the key indices are primed for further gains on the back of RBI’s latest monetary offensive and a rebound in global equities. The advance may be temporary though, given the multitude of headwinds confronting us.
FIIs were net sellers in the cash segment on Wednesday at Rs4.94bn, while the local institutions pumped in Rs1.19bn. In the F&O segment, the foreign funds were net buyers at Rs7.93bn. On Tuesday, FIIs were net sellers in the cash segment at Rs6.46bn. Mutual Funds were net sellers of Rs1.04bn.
US indices rebounded on Wednesday after five straight days of losses, thanks largely to industrial and commodity shares, on hope of more stimulus spending from the Chinese government. The market opened higher and for once it managed to hold on to the momentum following reports that China's economy may be improving. The sentiment also took some heart from the details of the US$75bn foreclosure plan.
The Dow Jones Industrial Average jumped 150 points, or 2.2%, to end at 6,875.84. Earlier in the session, the Dow had been up more than 250 points. The broader S&P 500 index rose 16.5 points, or 2.4%, to close at 712.87. The tech-heavy Nasdaq Composite index surged 33 points, or 2.5%, to finish at 1,353.74.
On Tuesday, the Dow and S&P 500 ended at fresh 12-year lows. It was the fifth straight loss for the three major indexes. The S&P 500 and Dow industrials are both more than 50% off their all-time highs from October 2007.
Traders bought shares of heavy-equipment, metals and oil companies on bets that Beijing will step up its attempts to stimulate China's economy. Aluminum major Alcoa and construction machinery manufacturer Caterpillar led the Dow advance, both up about 13%.
But, General Electric (GE) was down almost 5%, as investors feared that the conglomerate with a legendary AAA credit rating may face a downgrade that could push it into a cash shortage and funding problems.
China said on Wednesday that its manufacturing activity increased for the third straight month. Asian markets were also supported by reports that the Beijing government will add to its US$585bn stimulus program. The Shanghai Composite Index surged 6.1%. Japan's Nikkei ended up nearly 1%.
Federal officials announced details of the President Barack Obama's US$75bn foreclosure prevention plan and the program opened for business on Wednesday. The foreclosure fix aims to modify home loans so monthly payments are no more than 31% of monthly gross income. The plan will offer incentives to borrowers and loan service providers and investors to help struggling homeowners make their payments.
Job market data released showed continued weakness, but a mixed message about whether there's an improvement underway. Payroll-processing company Automatic Data Processing said the private sector lost 697,000 jobs in February - more than the 630,000 jobs economists were expecting.
Meanwhile, the number of planned job cuts announced in February fell for the first time since December, according to a report from outplacement firm Challenger, Gray & Christmas Inc. US employers announced 186,350 job cuts, down 23% from January's 241,749 cuts, according to Challenger.
Investors were bracing for the government's reading on the labor market which is due on Friday. The Labor Department report is expected to show that the economy shed 650,000 jobs in February, more than the 598,000 reported for January, according to a consensus estimate of economists. The unemployment rate is expected to rise to 7.9% from 7.6%.
A report released early in the morning showed further contraction in the service sector in February. The Institute for Supply Management's non-manufacturing index fell 1.3% to 41.6 in February from the month prior. The drop was not as steep as economists were predicting, however.
As global equities rallied, government debt prices fell. The benchmark 10-year note was down, sending its yield higher to 2.98%. Bond prices and yields move in different directions.
Lending rates were nearly unchanged. The 3-month Libor rate rose to 1.28% from 1.27% on Tuesday while the overnight Libor rate eased to 0.31% from 0.32%. Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.
Meanwhile, oil prices settled up US$3.73, or almost 9%, to US$45.38 a barrel. The government's weekly supply report showed that crude stockpiles decreased by 700,000 barrels in the week ended Feb. 27, while analysts expected an increase of 2.2 million barrels.
The dollar lost ground against the euro and the British pound, but rose against the yen.
COMEX gold for April delivery fell US$5.80 to US$907.80 an ounce.
The weekly jobless claims report will be released on Thursday. The number of Americans who filed for unemployment for the first time was expected to decrease to 650,000 from 667,000 the prior week, according to a consensus estimate of economists.
Also, factory orders for January are expected to have fallen 3.5% after having fallen 3.9% in the previous month.
In Washington, Federal Reserve Vice Chairman Donald Kohn is scheduled to testify at a Senate Banking Committee hearing on what happened with insurance giant American International Group.
European markets ended higher with companies exposed to China performing particularly well after government data raised hopes for a recovery in economic activity in that country.
The pan-European Dow Jones Stoxx 600 index climbed 3.9% to 167.61 on Wednesday, taking back some of the nearly 7% in losses made in the first two trading sessions of the week.
National equity markets finished in the black, with the UK's FTSE 100 index up 3.8% to 3,645.87, while Germany's DAX 30 index was up 5.4% at 3,890.94 and the French CAC-40 index gained 4.7% to 2,675.68.
Amid high volatility, Indian market ended on a flat but a slight positive note on Wednesday. After three days of losses, bulls finally had an upper hand as the discount in the Nifty March futures dropped to mere 10 points indicating short covering.
The Nifty managed to hold above the 2,600 level throughout the day, however on the higher side, sell on every rise was witnessed. The Nifty saw selling pressure every time the index went past the 2,650 levels.
Alternate bouts of buying and selling often tossed the benchmark index in positive and negative terrain. Even a positive start to equity markets across Europe had a minimal impact on the sentiments today.
The metal’s, oil & gas, Pharma and auto stocks were in demand. However, the banking along with capital goods stocks suffered the most.
The BSE Sensex marginally gained 19 points to close at 8,446 and the NSE Nifty was up 22 at 2,645.
Among the 30-components of Sensex, 22 stocks ended in positive terrain and only 8 stocks ended in the red. Reliance Infra, Grasim, TCS, JP Associates, Hindalco, Sterlite and Wipro were among the major gainers. Among the major laggards were, ICICI Bank HDFC, BHEL, SBI and RCom.
Among the major BSE Sectoral indices BSE Metal index was the top gainer, the index rose 3%. Among the other major gainer were BSE Oil & Gas index (up 1.1%), BSE Pharma index (up 1%) and BSE Auto index (up 1%).
However, the BSE Mid-cap and the BSE Small-cap index slipped 0.5% each.
Market breath was negative, 1,438 stocks declined against 997 advances, while, 100 stocks remained unchanged.
Shares of Aurobindo Pharma surge by over 3% to Rs160 after the company announced that it received tentative approval for Escitalopram Oxalate Tablets 5mg, 10mg and 20mg from the US Food & Drug Administration (USFDA). The scrip touched an intra-day high of Rs164.7 and a low of Rs158 and recorded volumes of over 0.2mn shares on BSE.
Shares of HDFC slipped to a new 52-week low of Rs1128 losing over 3%. The stock has plunged by over 140% from its peak of Rs2950.
Towards the end the stock slightly bounced back to end at Rs1161. The scrip touched an intra-day high of Rs1230 and a low of Rs1228 and recorded volumes of over 0.7mn shares on BSE.
Shares of Himatsingka Seide surged by over 8% to Rs20 after almost 940,000 equity shares changed hands in 2 transactions. The scrip touched an intra-day high of Rs20.3 and a low of Rs18.5 and recorded volumes of over 0.4mn shares on BSE.
Shares of Kotak Bank slipped by 1.2% to Rs233 after ~1.39mn shares of the company changed hands in a single block on BSE. The scrip touched an intra-day high of Rs242 and a low of Rs230 and recorded volumes of over 1.6mn shares on BSE.
Shares of Ashok Leyland slipped by 2% to Rs16.2. The company announced that its February sales dropped 56% at 3,245 units against 7,501 units in the same period previous year. The scrip touched an intra-day high of Rs16.4 and a low of Rs15.8 and recorded volumes of over 1.4mn shares on BSE.
Shares of M&M gained by 1% to Rs314 after report stated that the company was in talks with Lockheed Martin and BAE for a naval JV. The scrip touched an intra-day high of Rs319 and a low of Rs310 and recorded volumes of over 0.2mn shares on BSE.
Shares of Pfizer gained by 4.7% to Rs536 the company announced that it would license 50 generics from Aurobindo. The scrip touched an intra-day high of Rs536 and a low of Rs506 and recorded volumes of over 10,000 shares on BSE.