Sensex reclaims 16,000

Firm Asian shares triggered a recovery in battered Indian shares in early trade. The end of the standoff between the government and anti-corruption activist Anna Hazare during the week-end aided initial rally as the barometer index BSE regained the psychological 16,000 mark. The Sensex was up 289.97 points or 1.83%. The market breadth was strong. Most Asian stock markets gained after Federal Reserve Chairman Ben Bernanke on Friday, 26 August 2011, said that the the US economic recovery will accelerate and the central bank has more means to prop up growth if appropriate.



Index heavyweight Reliance Industries edged higher in early trade. IT stocks surged after Bernanke said he is "more optimistic" about the long-term prospects of the US economy even amid challenges from the slumping housing market and financial-market volatility. All the 13 sectoral indices on BSE were in the green.

At 09:27 IST, the BSE Sensex was up 289.97 points or 1.83% to 16,138.80 which was also the day's high so far. The index rose 219.90 points at the day's low of 16,068.73 in early trade.

The S&P CNX Nifty was up 91 points or 1.92% to 4,838.80. The Nifty hit a high of 4,842.25 and a low of 4,806.05 in intraday trade.

The market breadth, indicating the overall health of the market, was strong. On BSE, 823 shares rose and 200 shares fell. A total of 21 shares remained unchanged.

Among the 30-share Sensex pack, 29 rose while only one stock fell.

Index heavyweight Reliance Industries (RIL) rose 2.31% to Rs 736.10. The stock had hit 52-week low of Rs 713.55 in intraday trade on Friday, 26 August 2011. RIL has received the government's formal approval to sell a 30% stake in 21 oil and gas production sharing contracts to BP PLC. The initial proposal was for RIL to sell the stake in 23 blocks to BP for $7.2 billion plus another $1.8 billion linked to exploration success. However, the government cleared only 21 blocks and RIL had said it would continue to seek approval for the remaining two blocks.

Meanwhile, RIL has hired Navin Wadhwani, currently managing director at NM Rothschild and Sons (India), to lead mergers and acquisitions at the company. RIL, which has diversified from its textile origins into oil and gas, retail and financial services, is looking to expand into more areas and effectively utilize the $9 billion on its balance sheet.

IT stocks surged after Bernanke said he is "more optimistic" about the long-term prospects of the US economy even amid challenges from the slumping housing market and financial-market volatility. The US is the biggest market for the Indian IT firms. India's third largest software services exporter Wipro rose 2%. India's largest software services exporter TCS gained 2.62%.

Infosys jumped 3.33%. As per recent reports the company has won a $29-million mobile banking deal from ANZ Australia, one of the largest listed companies in Australia with assets of AU$531.74 billion. The stock had hit 52 week low of Rs 2169 in intraday trade on Thursday, 25 August 2011. ANZ is a customer of Infosys' core banking product Finacle since 2006 and has used the solution to quickly expand its business in Asia. The deal is a positive sign for the sector, whose pipelines have been running dry of late, report said.

India's largest private sector iron ore exporter Sesa Goa tumbled 3.58% after company today, 29 August 2011, said it will have to stop mining in Chitradurga district of Karnataka following a latest Supreme Court order. The ban on mining will adversely affect to some extent the performance of the company, Sesa Goa said in a statement. The annual permitted capacity of the Chitradurga mine at present is 6 million tonnes, the company said.

The Supreme Court on Friday, 26 August 2011, extended a ban on iron ore mining in Karnataka after a court-appointed body found prima facie evidence of environmental degradation in the districts of Tumkur and Chitradurg.

Reliance Infrastructure gained 2.51% after the company said it bought-back five lakh equity shares on Friday, 26 August 2011. So far, the company has bought back 34.79 lakh shares for Rs 192.96 crore. The company has announced an up to Rs 1000 crore buyback programme.

Foreign institutional investors (FIIs) have pressed heavy sales this month amid the ongoing credit crisis in the euro zone. The sustained selling by foreign funds is a cause for concern for India Inc. Foreign portfolio inflow acts as a catalyst to private corporate capital expenditure in India. Foreign institutional investors (FIIs) provisionally sold shares worth net Rs 226.25 crore on Friday, 26 August 2011. FII outflow in August 2011 totaled a massive Rs 12393.44 crore (till 26 August 2011), as per data from the stock exchanges.

FIIs have sold shares worth a net Rs 17432.69 crore in calendar year 2011 so far, till 26 August 2011, as per data from the stock exchanges. Domestic institutional investors have bought shares worth a net Rs 22817.27 crore this year so far.

As per a recent survey by a prominent investment bank, Corporate India will raise capital spending by tepid 10% in the year to March 2012 (FY 2012). Capital expenditure (capex) in FY 2012 will be concentrated on improving productivity rather than adding greenfield capacity, the investment bank said.

The Reserve Bank of India (RBI), last week, said that there is a need to rebalance demand from consumption to investment by stepping up savings in the economy. In order to achieve a 9% growth in Twelfth Five Year Plan (2012-17), the investment rate of 40.5% would be required if incremental capital output ratio (ICOR) remains unchanged from 4.5% during the Eleventh Plan. This requires augmenting saving as well as bringing about technological and institutional improvements to lower ICOR.

In its annual report for 2010-2011 released on Thursday, 25 August 2011, RBI said that there is a need to step up savings in the economy. The current account deficit (CAD) that finances the saving-investment gap has averaged less than 1% of GDP over past two decades. Even assuming a higher a CAD/GDP ratio of 2%, gross domestic saving (GDS) rate need to be raised by about 5 percentage points from 33.7% in 2009-10, RBI said. This underscores, the importance of augmenting saving as well as bringing about technological and institutional improvements to realize higher growth through higher investments and lower ICOR.

Overall investment requirements and the need for continued sustainability on current account, thus underscore the need for attaining the highs of private corporate and public sector savings reached in the recent past and exploring the possibility of invoking an upward shift in household savings which have remained stable for many years, RBI said.

RBI said there could be some pressure on CAD if the global economy weakens significantly and affects exports. With adequate foreign exchange reserves, India remains capable of handling any pressures emanating from the external sector in the near term. However, from a medium to long term perspective, it is important to improve resilience of external account by pursuing policies that shift the composition of capital flows so as to reduce dependence on its volatile components, RBI said. Augmenting foreign direct investment (FDI) further could bring about a better balance between different components of capital flows and reduce the possibility of volatile currency movements and any pressure on reserves in the face of contagion risks, RBI said.

RBI said tackling food inflation also needs a strategy to break the inertial element arising from rising real wages leading to increases in the Minimum Support Price (MSP), which in turn lead to higher food inflation that feeds back to higher wages with an element of indexation. Rural wage programmes need to be linked with productivity, RBI said. If productivity improves, real wages can rise without putting pressure on prices. The inclusion agenda can then be pursued on a sustainable basis without drag on inflation and the fiscal position.

Transmission of inflation from abroad has also been an important element in keeping inflation high in the recent years, RBI said. International commodity prices remain a potential threat as global liquidity is still far too large due to monetary policy accommodation by advanced countries, RBI said. Fuel and food security would need to be given particular attention. There is a need for environmentally sustainable solutions to manage energy security. Free pricing of petroleum products can help, as a large population cannot be subsidised in an import dependent item, RBI said.

The central bank also said that pricing power in the manufacturing sector has macro as well as micro angles. A competition policy has been put in place and industrial organisation structures could be studied along with price information to stamp out anti-competitive practices and collusive behavior. Such behavior also adds to inflationary pressures and needs to be curbed, RBI said.

RBI said inflation is likely to remain high and moderate only towards the latter part of the year to about 7% by March 2012. The recent decline in global commodity prices has not been very significant, RBI said. If the global recovery weakens ahead, commodity prices may decline further, which should have a salutary impact on domestic inflation, RBI said. The pass-through of the rise in global commodity prices so far has been incomplete, especially in the minerals and oil space. As such, the benefit of a moderate fall in global commodity prices on domestic price level would also be limited, RBI said.

If global oil prices stay at current level, further increase in prices of administered oil products will become necessary to contain subsidies. Fertiliser and electricity prices will also require an upward revision in view of sharp rise in input costs, RBI said. The high and persistent inflation over the last two years has brought to the fore the limitation in arresting inflation in absence of adequate supply response. However, monetary policy still has an important role to play in curbing the second round effects of supply-led inflation, RBI said. In face of nominal rigidities and price stickiness, there are dangers of accepting elevated inflation level as the new normal, the central bank said.

The food price index rose 9.8% and the fuel price index climbed 13.13% in the year to 13 August 2011, government data on Thursday, 25 August 2011, showed. In the previous week, annual food and fuel inflation stood at 9.03% and 13.13% respectively. The primary articles index was up 12.4%, compared with an annual rise of 11.64% a week earlier.

The near-term prospects for agricultural sector remain good. The rainfall deficit in the country had widened to 5% of the long-term average in July 2011, but a pickup in August 2011 helped narrow the deficit to 1% by 24 August 2011. Good rains could help boost rural income and may help bring down food inflation.

Meanwhile, Indian firms relying on European and US markets are worried about a likely economic slowdown in the US and Europe. Bilateral trade between India and the US stood at $36.5 billion in 2010.

Commerce Minister Anand Sharma recently said India's discussions with the European Union (EU) and Canada to form free-trade agreements are in advance stages. India aims to boost bilateral trade with Canada to C$15 billion (US$15.3 billion) a year by 2015 from about C$4.2 billion in 2010. With the 27-member EU, India had initiated discussions on the free-trade pact in 2007. The two sides originally hoped to conclude a wide-ranging deal by 2010 to boost trade to $237 billion annually by 2015. Their bilateral trade is currently worth about $92 billion.

Meanwhile, anti-corruption activist Anna Hazare on Sunday, 28 August 2011, called off his 13-day hunger strike after the government pledged that the anticorruption legislation it is drafting would address several of his demands, ending a crisis that has tested the nation's political will to crack down on graft and put the Gandhian social activist's health in peril.

Hazare decided to end his fast after Parliament on Saturday night endorsed his core proposals for a bill that will set up a "Lokpal"--an independent agency to investigate and prosecute corruption in Indian public life. Hazare's movement has come to symbolize Indians' rage at rampant corruption in public life--especially the kind of alleged big-ticket wheeling and dealing between bureaucrats and companies that has come to light in a wave of scandals over the past year.

Most Asian stock markets gained on Monday, 29 August 2011, following Friday's (26 August 2011) advance on Wall Street after Federal Reserve Chairman Ben Bernanke's speech encouraged buyers. Bernanke refrained from stating that the Federal Reserve would immediately introduce new measures to support the US economy, saying instead that options would be discussed at the Fed's next meeting in September. The key benchmark indices in Hong Kong, Japan, Singapore, South Korea and Taiwan rose by between 0.76% to 2.81%.

Chinese banks led mainland Chinese stocks lower as concerns about monetary tightening returned on reports the People's Bank of China has announced new measures that would in effect increase the amount they must set aside as reserves. The China's Shanghai Composite was down 1.06%.

Trading in US index futures indicated that the Dow could gain 63 points at the opening bell on Monday, 29 August 2011.