Equities rally as G20 pledges to keep stimulus measures in place

The key benchmark indices spurted as the US dollar fell sharply against major rivals after finance ministers and central bankers from the Group of 20 leading economic powers pledged to keep massive stimulus measures in place until the global recovery strengthens. Closer home, hopes of a pick-up in the pace of economic reforms further bolstered bulls. The BSE 30-share Sensex was provisionally up 349.43 points or 2.16%, up close to 360 points from the day's low. Banking, FMCG, auto, metal and realty stocks jumped.
Energy major Reliance Industries (RIL) extended surged on reports the firm is close to announcing a major overseas acquisition. India's largest engineering and construction firm by sales Larsen & Toubro rose after it won fresh orders. The market breadth was strong.
A bout of volatility was witnessed earlier in the day. The market surged in early trade tracking higher Asian stocks. The market pared gains later. The market slipped into the red for a brief period in mid-morning trade before regaining strength. The market surged to fresh intraday high in early afternoon trade. The market extended gains later.
The Group of 20 finance ministers and central bankers pledged on Saturday, 7 November 2009, to prepare strategies to end emergency support for their economies, but to keep the aid flowing until recovery was assured. The world's biggest economies - the European Union, the United States and Japan - are either expected to or already have emerged from recession in the third quarter.
This has prompted a discussion on when to start cutting back on the trillions in public support pledged to cushion the worst economic downturn since World War Two to maintain credibility of fiscal policies with markets and consumers. Officials from the world's 20 biggest developed and emerging economies said at the end of talks in the small Scottish town of St. Andrews that while the economy has improved, recovery was still uneven and depended on policy support.
The US dollar which has been at a receiving end in the past one year extended losses on Monday, 9 November 2009, on speculation the US Federal Reserve will be slow in raising borrowing costs. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, fell 0.9% to 75.158. The International Monetary Fund (IMF) added to dollar's woes by commenting that although the dollar has "moved closer to medium-run equilibrium," it continues to trade "on the strong side."
With short-term interest rates very low, global traders have turned to borrowing funds cheaply in the US and then reinvesting the proceeds in equities and commodities, looking to lock in higher returns and benefiting from further erosion in the dollar. These so called US dollar carry trades have kept putting pressure on the dollar as investors short the currency to invest elsewhere.
The Federal Reserve could remove some of the extraordinary support it has extended to the US economy once the recovery looks solid and monthly job growth has returned, a top US central bank official said. In an interview posted on the the Financial Times' website on Sunday, St. Louis Federal Reserve Bank President James Bullard said he would not favor tightening monetary policy before recovery was well-established. The Fed at the end of a two-day regular policy meeting on 4 November 2009 promised again to keep interest rates exceptionally low for an extended period because it expects only a weak recovery.
There has been a solid surge in inflows in emerging markets equity funds this year. But a strong rebound in the dollar, if any, may result in unwinding of positions by traders/institutions in emerging market equities. The dollar had witnessed an intermittent recovery recently after world equities corrected. The dollar tends to move in tandem with swings in risk appetite, rising when economic numbers are bad or when stocks are down.
Closer home, Prime Minister Manmohan Singh said on Sunday, 8 November 2009, that the government would push through legislative changes, including in the insurance sector which foreign players are eyeing. Singh also said his government would take steps in the 2010/2011 fiscal year to wind down economic stimulus measures for Asia's third largest economy. He said there is a need to develop long-term debt markets, deepen corporate bond markets, strengthen the insurance and pensions sectors, improve futures markets for better price discovery and regulation. He also said the government would accelerate the sale of stakes in state-run companies.
The government, last week, mandated more sales of shares by state-run firms and changed the rules on how it can use the proceeds, as it seeks to boost revenues and rein in a widening budget deficit. The government said all profitable, listed state-run firms must have at least 10% of their shares in public hands, and unlisted firms that had a positive net worth, no accumulated losses and a net profit over the past three years should list.
The government plans to introduce in parliament by December 2009 bills proposing the raising of foreign stake limits in insurers to 49% from the present 26% and opening up the pension sector to private and foreign firms. It will also propose a law to cut its holding in top lender State Bank of India to 51%
The prime minister said growth in the next fiscal year, assuming a normal monsoon season, was expected to be more than 7% compared with a 6.5% forecast for the 2009/2010 fiscal year. The government has a medium-term target of 9% growth per annum, needed to help reduce widespread poverty. Singh said the Indian economy grew 6.7% in 2008/2009 with the help of an economic stimulus package.
The timing of the withdrawal of stimulus steps for India's economy will be decided when it becomes clear the economy is recovering, but there will be no fresh stimulus, Finance Minister Pranab Mukherjee said on Sunday.
Last month, while announcing the monetary policy the Reserve Bank of India signalled an interest rate hike was imminent, citing inflationary pressures. It also started tightening some bank credit.
European shares rose on Monday after the Group of 20 pledged to keep the aid flowing until the recovery was assured, with banks and commodities the major gainers. The key benchmark indices in France, Germany and UK were up by between 1.33% to 1.46%.
Asian stocks climbed on Monday after modest gains on Wall Street Friday, 7 November 2009. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan rose by between 0.28% to 1.73%.
Moody's Investors Service raised the outlook on China's A1 rating to positive from stable on Monday, praising its economic performance in the past year during the global financial crisis. The agency said the country's strong credit fundamentals would resume its improving trend as the economy emerged from the effects of the global recession.
In a separate release, Moody's also said it was lifting the credit outlook on Hong Kong's Aa2 government bonds to positive from stable. Moody's said while Hong Kong has a separate credit rating from mainland China, it deserved a review because of increasing financial and economic ties with the fast-growing mainland economy. The boost in outlook comes even as Hong Kong has projected government deficits for the next two years.
Trading in US index futures indicated Dow could gain 80 points at the opening bell on Monday, 9 November 2009.
US stocks rose in a choppy trading session on Friday, lifted by several broker upgrades that offset disappointing data showing the unemployment rate rose to its highest in more than 26 years. The Dow Jones industrial average gained 17.46 points, or 0.17%, to end at 10,023.42. The Standard & Poor's 500 Index rose 2.67 points, or 0.25 %, to 1,069.30. The Nasdaq Composite Index added 7.12 points, or 0.34 % to close at 2,112.44.
The economic data came in worse than expected. The US Labour Department said employers cut 1,90,000 jobs in October 2009 and the unemployment rate jumped to 10.2%, its highest level in more than 26 years. In other data, wholesale inventories fell 0.9% in September 2009 and consumer borrowing fell by $14.8 billion in September.
APEC countries including the United States, Japan and China are expected to pledge this week to keep up their stimulus policies and push for a global trade deal in 2010 to spur a lasting economic recovery. Leaders from the grouping will also try to provide some momentum for global talks on climate change next month in Copenhagen. The Asia Pacific Economic Cooperation (APEC) forum has started annual meetings of leaders in Singapore which culminate in a leaders summit on 14-15 November 2009.
Rajat Nag, managing director general of the Asian Development Bank on Monday said it is premature for Asian central banks to begin exiting from their extraordinarily loose monetary policies given the fragility of economic recovery. Nag said the US dollar will remain a key reserve currency but that other currencies will also gain prominence over the medium and longer term.
As per provisional figures, the BSE 30-share Sensex was up 349.43 points or 2.16% to 16507.71. The Sensex rose 359.14 points at the day's high of 16517.42 in late trade. The Sensex fell 11.07 points at the day's low of 16147.21 in early afternoon trade.
The S&P CNX Nifty jumped 106.10 points or 2.21% to 4902.25 as per provisional figures.
BSE clocked a turnover of Rs 4981 crore, sharply lower than Rs 6019.18 crore on Friday, 6 November 2009.
The market breadth, indicating the overall health of the market was strong. On BSE, 1950 shares advanced as compared with 757 that declined. A total of 61 shares remained unchanged.
From the 30 share Sensex pack, 26 stocks rose and rest fell.
The BSE Mid-Cap index rose 2.06% and the BSE Small-cap index gained 2.23%.
Energy major Reliance Industries (RIL) rose 3.44% to Rs 2024 on reports the firm is close to announcing a major overseas acquisition. The likely target is a part of the assets owned by troubled petrochemical major LyondellBasell, which is undergoing reorganisation under the protection of a US court, reports suggest.
The government on 27 October 2009 allocated additional 50 million cubic metres a day (mmscmd) of gas from Reliance Industries-operated east coast block D6. Power plants and refineries will get the bulk of Reliance Industries' gas from the Krishna-Godavari basin beyond the previously allotted 40 million metric standard cubic metres per day (mmscmd).
The empowered group of ministers (eGoM) also made some allotments for Reliance's petrochemical plants and refineries.
India's largest engineering and construction firm by sales Larsen & Toubro rose 1.67% after it won orders worth Rs 1635 crore.
Rate sensitive realty shares reversed early losses on bargain hunting. Sobha Developers, Unitech, Omaxe, DLF and Indiabulls Real Estate rose by between 0.36% to 20%.
Realty stocks have bounced back from lower level after a recent steep slide triggered by the RBI raising the provisioning requirements for loans to commercial real estate from 0.4% to 1% in its monetary policy review meet on 27 October 2009. The latest RBI move will result in increase in borrowing costs for realty firms which depend heavily on borrowing. In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets (NPAs), the central bank said in its quarterly policy review.
FMCG stocks rose on bargain hunting. United Spirits, ITC, Dabur India, Tata Tea, Britannia Industries rose by between 1.44% to 3.8%.
India's largest FMCG maker by sales Hindustan Unilever fell 0.50% after a leading foreign broker downgraded the stock to 'underweight' from 'equal-weight'.
Metal stocks rose on a strong domestic demand . Hindalco Industries, Hindustan Zinc and Sterlite Industries rose by between 1.69% to 3.02%.
National Aluminium Company rose 0.53%, The company recently hiked the prices of aluminium products by Rs 1000 a tonne reflecting the recent uptrend in prices on the London Metal Exchange.
Steel stocks rose for the third straight day on reports major steel producers have posted strong sales volumes for the month of October 2009. Steel Authority of India (Sail) rose 4.76%. Sail has posted 28% growth in saleable steel volumes to 0.85 million tonnes in October 2009 over October 2008.
Tata Steel, the world's eighth largest steelmaker by output rose 1.93% after jumping 3.08% on Friday, 6 November 2009. The company said on Friday 6 November 2009 steel sales at its Indian operations rose 38% to 462,000 tonnes in October 2009 over October 2008.
JSW Steel rose 6.93%. JSW steel's sales doubled to 0.4 million tonnes in October 2009 over October 2009.
Demand for steel remains strong auto, rural construction and infrastructure sectors. Also demand for construction grade steel has improved post monsoon season, and has resulted into higher sales. Another reason for the surge in sales in October 2009 was lower base effect, as last year demand dropped significantly owing to economic downturn. Most steel companies had cut production in October last year due to the global economic crisis and steep fall in demand.
Usha Martin advanced 1.89%, after the company said its board will meet on 12 November 2009 to consider raising funds through issue of securities.
Banking shares rose on hopes of financial sector reforms. India's largest private sector bank by net profit ICICI Bank rose 4.72% even as its ADR fell 0.19% on Friday 6 November 2009. The bank's net profit rose 2.6% to Rs 1040.13 crore on a 12.7% decline in total income to Rs 8480.73 crore in Q2 September 2009 over Q2 September 2008. The result was announced during trading hours on 30 October 2009.
India's second largest private sector bank by net profit HDFC Bank rose 4.06% as its ADR rose 1.21% on Friday.
India's largest bank by net profit State Bank of India (SBI) rose 5.19%. State Bank of India said on Monday it had entered into an agreement with T. Rowe Price to sell a 6.5% holding each in UTI Asset Management Company and UTI Trustee Company. State Bank currently holds 25% in each of the companies and after the sale its holding would be reduced to 18.5%, it said in a statement.
SBI announced after market hours on Friday 6 November 2009 it has revised downwards interest rates on deposits by 25-50 basis points for a few maturities effective from 9 November 2009. The bank's consolidated net profit rose 28.29% to Rs 3,133.16 crore on 22% rise in consolidated income to Rs 33,101.65 crore in Q2 September 2009 over Q2 September 2008. The results were announced on 31 October 2009.
Punjab National Bank rose 2.42% after bank said on Monday it will sell 6.5% stake in each in UTI Asset Management and UTI Trustee Co to T. Rowe Price. The stake sale in the asset management company will fetch the state-run lender Rs 163 crore.
Bank of Baroda rose 3.07% after bank said on Monday it signed a definitive agreement to sell 6.5% stake each in UTI Asset Management Co and UTI Trustee Co to T. Rowe Price. The bank's shareholding in both these companies will fall to 18.5% after the divestment, Bank of Baroda said in a statement to the stock exchange.
The RBI did not relax mark-to-market rules for bank's debt holdings at a quarterly policy review on 27 October 2009. The market was been agog with talks of the central bank hiking the ceiling on the portion of government securities that banks can park in held-to-maturity (HTM).
The central bank also decided to streamline provisioning requirement on non-performing assets. The RBI, asked banks to ensure by September 2010 that the total provisioning coverage against non-performing or bad loans aren't less than 70% of the outstanding amount.
Auto stocks reversed early losses. Low interest rates and attractive benefits offered by companies pushed up sales of the industry in October 2009.
India's largest small car marker by sales Maruti Suzuki India rose 0.82%. The company's total sales grew 32.4% to 85415 units in October 2009, compared with 64490 units posted in the same month a year ago.
India's largest truck marker by sales Tata Motors rose 1.95%. Its total sales grew 18% to 20,011 units last month against 17,014 units in the same period last year.
India's largest tractor maker by sales Mahindra & Mahindra rose 3.38%. The company's overall sales climbed 32% in October this year to 18,410 units against 13,935 units in the same month last year. Mahindra and Mahindra (M&M) reportedly plans to launch a motorcycle next year. The company is also looking at acquisitions in the electronic scooter space. The auto major had entered the two-wheeler market market by acquiring the assets of Pune-based scooter manufacturer Kinetic Motor in 2008.
India's largest bike marker by sales Hero Honda Motors rose 1.18%. The company reported a marginal increase in October sales at 354,156 units as against 352,449 units in the same month last year
India's second largest bike marker by sales Bajaj Auto rose 1.21% The company reported 51.06% rise in total two-wheeler sales to 2,49,974 units in October 2009 as compared with 1,65,477 units in the same period a year ago.
Sundaram Brake Linings rose 1.94% after the company said it will invest about Rs 21.5 crore to raise friction materials production capacity by 3,000 tonnes to 23,000 metric tonnes.
Geometric surged 5.26%, after one of the promoter group companies hiked its stake in the firm.
IOL Netcom rose 1.26% after the company's board approved raising up to Rs 1250 crore.
Sonata Software gained 2.10%, after a wholly owned subsidiary of the company secured an order for an undisclosed amount.