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Friday, May 29, 2009

Market may extend recent gains


The key benchmark indices may extend last two day's of gains on positive global cues. Investors will keenly watch the GDP figures for the quarter ended March 2009 to be announced today.

The market expectations are that the economy is estimated to have expanded 5.2 % in the fiscal fourth quarter to 31 March 31, compared with a year earlier, Asia's third-largest economy grew 7.9 % in the June 2008 quarter, 7.6% in the September 2008 quarter and 5.3 % in the December 2008 quarter.

Meanwhile, the barometer index Sensex has risen 706.78 points or 5.2% in the last two trading sessions.

Asian stocks rose today led by mining companies, as a better-than-expected Japanese factory output report boosted copper prices. Key bechchmark indices in HongKong and Singapore rose by between 0.43% to 1.25%.

Japan's Nikkei rose 0.06% after its industrial output rose 5.2 % in April 2009, the biggest monthly gain in more than half a century and sharply higher than the median market forecast for a 3.2 % rise. It was the second month in a row of increasing production after five months of decline.

The US markets ended higher on Thursday 28 May 2009 as crude prices climbed to 65 dollars after an inventory pare-down and the results of the Treasury bond auction eased concerns about government debt. The Dow gained 103.78 points, or 1.3%, to 8,403.80. The S&P 500 index added 13.77 points, or 1.5%, to 906.83, and the Nasdaq composite index advanced 20.71 points, or 1.2%, to 1,751.79.

In the day's economic news, new-home sales ticked up 0.3 % to a seasonally adjusted rate of 352,000 in April 2009, less than expected. March sales were revised sharply lower. Meanwhile, initial jobless claims dropped by 13,000 to 623,000 from a slightly revised 636,000. Continuing claims rose to another record around 6.8 million.And durable-good orders rose 1.9 % in April 2009 but enthusiasm was tempered by a sharply lower revision for March 2009.

Crude shot up to near a six-month high of 65 dollars as OPEC left production quotas unchanged and a report showed that crude inventories were pared down by 5.413 million barrels last week.

Back home, the wholesale price index rose 0.61% in the 12 months to 16 May 2009, matching the previous week's annual rise, government data showed today, 28 May 2009. The government, meanwhile, revised upwards the rate of inflation for the year through 21 March 2009 to 0.84% from 0.31%. Finance Minister Pranab Mukherjee on Wednesday said inflation is reasonably down and reviving growth will be the government's top priority.

Mukherjee during on Wednesday said that a sustained stimulus to economic growth is possible by next round of reforms. He said reviving growth momentum is a top priority for the government adding that fiscal prudence will also be kept in mind.

Mukherjee said the government will stick to fiscal deficit target of 5.5% of GDP in the current financial year that ends on March 2010 (FY 2010). He said the government is committed to fiscal consolidation in 2-3 years.

Mukherjee said the government will continue to step up spending this year to support growth, risking a wider budget deficit. Growth and employment are not possible without increased spending and borrowing, the Finance Minister said. The prophets of doom have been unduly focusing on increased public spending and a consequent increase in the fiscal deficit, Mukherjee said. "An early return to our recent growth performance will help us get back to our preferred path of fiscal prudence," he said.

The fiscal deficit jumped to an estimated 10.6% of the nation's gross domestic product in the year ended 31 March 2009. India's credit rating may come under pressure if the government is not able to rein in a widening budget deficit, Moody's Investors Service today, 28 May 2009, said. “The stable outlook on the ratings has recently faced growing pressure, mainly due to substantial deterioration in the fiscal position,” Aninda Mitra, a senior analyst at Moody's in Singapore, said in a report today. “Inability of the newly re- elected government to meaningfully adjust fiscal policies and push ahead with reforms could pressurize the foreign currency credit rating.”

Moody's Baa2 rating on India's long-term foreign debt is the second-lowest investment grade. The ranking is the highest in South Asia after Kazakhstan's, four levels below China's, two levels under Malaysia's and six levels above Pakistan's.

“If the newly re-elected government proves able to quickly outline and sustain a credible program for reducing consolidated deficits, then the sustainability prospects for general government debt would improve,” Moody's said in its report. “These trends could boost the outlook for the country's local currency credit ratings.”

The comments from Moody's came after Fitch Ratings, which ranks India's debt BBB-, on 14 May 2009 said it expected the new government to step up spending to arrest slowing growth. That would widen India's national budget deficit, including state government finances, to more than 10% of GDP for a second year in a row, Fitch said.

According to analysts the new government should give priority to reforming the subsidy mechanism aimed at improving delivery mechanism while at the same time reducing costs. Analysts also say labour reforms are needed as a number of youngsters enter the job market.

The FM on Wednesday said he would be able to announce the full-budget for FY 2010 by the first week of July 2009 and try to get it approved by 31 July 2009. He said the common man will be the focus of the government policy.

Mukherjee said the industry and business have been hurt by high cost of finance but added that coordinated steps taken by central bank and government have stabilised the economy. He said the liquidity situation eased considerably adding that international capital flows have resumed.

The FM said he hoped banks would take advantage of the monetary policy and make cheap credit available. "One of the first steps I propose to take is to meet bankers and get them committed to a more benign plan of action," he said. His comments came in the backdrop of a newspaper report that state-run banks plan to cut lending rates by 100-150 basis points within the next fortnight after a finance ministry directive to lower interest rates in line with falling cost of funds.

In the political front, ending nearly a fortnight of suspense, the United Progressive Alliance (UPA) cabinet under the leadership of Prime Minister Manmohan Singh finally took shape on Thursday. While eight of the 27 cabinet ministers retained their portfolios Jairam Ramesh becomes minister of state with independent charge. Key cabinet ministers who retained their portfolios are Jaipal Reddy (urban development), Sushil Kumar Shinde (power), Vayalar Ravi (overseas Indian affairs), A. Raja (communications and information technology), Murli Deora (petroleum and natural gas), Kumari Selja (housing and urban poverty alleviation), Subodh Kant Sahay (food processing industries) and M.S. Gill (youth affairs and sports).

Vilasrao Deshmukh, who was removed as chief minister of Maharashtra after the 26/11 terror attacks in Mumbai, has got heavy industries and public enterprise and former Himachal Pradesh chief minister Virbhadra Singh the ministry of steel. Former Jammu and Kashmir chief minister Ghulam Nabi Azad was given health and family welfare.

Moily was given charge of law ministry, while another former Jammu and Kashmir chief minister Farooq Abdullah was allocated the ministry of new and renewable energy. Debutant C.P. Joshi from Rajasthan was given the portfolio of rural development and panchayati raj.

Another first-timer, Shashi Tharoor, was appointed minister of state (MoS) in the external affairs ministry, while Sachin Pilot will take charge as an MoS in the communications and information technology ministry and Agatha Sangma as his counterpart in the rural development ministry.

Jyotiraditya Scindia will now move to the commerce ministry as MoS. Dayanidhi Maran from Dravida Munnetra Kazhagam got textiles and B.K. Handique from Assam was made minister of mines as well as the development of north-eastern region. Among those with independent charge, Praful Patel retains civil aviation. Congress leader Prithviraj Chavan, too retained his post as MoS in the Prime Minister's Office and got additional charge as an MoS for science and technology, ministry of earth as well parliamentary affairs, among others. Salman Khurshid was made MoS with independent charge of corporate affairs, along with minority affairs.

The portfolio announcements came late in the evening, well after the conclusion of the second round of cabinet expansion. On Thursday, 14 cabinet ministers, seven ministers with independent charge and 38 ministers of state were sworn in, while 19 cabinet ministers were sworn in on 22 May. Of the 59 ministers inducted on Thursday, 42 are from the Congress, taking the total number of ministers from the party to 60, including the Prime Minister.

Dr Manmohan Singh was on 22 May 2009 sworn-in as Prime Minister for a second consecutive term. A day after the swearing-in of the UPA government on Friday 22 May 2009, the Union cabinet met under the chairmanship of Prime Minister Manmohan Singh on Saturday 23 May 2009. The cabined took a decision to convene the Parliament session from 1 June to 9 June 2009. A meeting with leaders of various parties will be held in the first week of June 2009 for finalising the dates of the budget session, home minister P Chidambaram said after the cabinet meeting on Saturday. He said government is quite hopeful of passing the budget by 31 July 2009.

The Speaker's election would be held on 3 June 2009 and President Pratibha Patil will address the joint sitting on 4 June, the day Rajya Sabha will also be convened. This will be followed by the debate on motion of thanks. Explaining the process of passing the general budget, Chidambaram said this has to be completed by 31 July 2009 failing which a vote-on-account will have to be approved.

A comfortable victory for the Congress-led coalition government in election has raised expectations of a strong push for economic reforms by the government. Dr Manmohan Singh has reportedly prepared the broad contours of an economic revival plan to be taken up soon after the new government is formed, reports suggest. While recommendations to revive growth and ease the credit squeeze are likely to find a place in the plan, tax proposals are expected to be taken up as budget recommendations.

The telecom ministry has prioritised the much delayed auction of 3G airwaves and WiMAX spectrum. It has also prioritised introduction of a new spectrum policy.

The petroleum ministry has reportedly prepared a draft Cabinet note on a partial decontrol of petrol and diesel prices after which they will be linked to international movements.

The new government is also likely to pursue disinvestment of state-run undertakings, reports suggest. It remains to be seen whether the government undertakes privatisation of state-run firms.

Financial sector reforms are likely to get a push in the coming days, which were relegated to the back seat due to persistent opposition from the Left parties.

The Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, 20 May 2009, giving it a clear majority in a new government. Congress said it has support of 274 members of the 15th Lok Sabha. In addition, the Bahujan Samaj Party, the Samajwadi Party and the Rashtriya Janata Dal sent letters of support for a Manmohan Singh-led government directly to the President, taking the support base to 322.

The Congress-led UPA defied predictions of a tight election and was only about 11 seats short of an majority from the 543 seats at stake in the recently concluded Lok Sabha election. Congress' alliance took 261 seats, sweeping aside its nearest rival the Bharatiya Janata Party (BJP), which won only 159 combined. Congress, which alone won 205 seats, needs a handful of partners to reach the 272 seats needed to take power, and is expected to seek the support of more smaller parties or independents.