It was a Diwali bonanza for stock market investors as the key benchmark indices scaled record closing highs during the special 45-minute Muhurat trading session held today, 5 November 2010, to mark the begging of the Samvat Year 2067. After a strong start, the market pared gains. Index heavyweight Reliance Industries (RIL) and Larsen & Toubro reversed initial gains. Another indecx heavyweight ICICI Bank also pared gains. The BSE 30-share Sensex jumped 111.39 points or 0.53% to 21,004.96, off close to 100 points from the day's high. All the sectoral indices on BSE were in green. The market breadth was strong.
The barometer index BSE Sensex today, 5 November 2010, crossed the psychological 21000 mark. The 50-unit S&P CNX Nifty surged past the psychological 6,300 level. Banking, realty and auto stocks rose. State Bank of India (SBI), Tata Motors and Hindalco Industries hit record highs. ICICI Bank hit 52-week high.
THE WEEK PAST:
::RBI ups rates again...But hints at a pause::
The Reserve Bank of India (RBI) hiked the repurchase rate (repo rate) and the reverse repurchase rate (reverse repo rate) by 25 basis points (bps) each as part of its efforts to rein in spiraling inflation in a fast-growing Indian economy. The repo rate now stands at 6.25% while the reverse repo rate has increased to 5.25%. The bank rate and the cash reserve ratio (CRR) have been left unchanged at 6% each. The RBI left the FY11 GDP growth forecast unchanged at 8.5% while inflation target (based on new WPI series) for the current year has also been kept unchanged at 5.5%. Inflation target as per the old WPI series has been left untouched at 6%.
A section of economists, analysts and bond dealers were hoping for a status quo on monetary policy. The RBI started its rate tightening cycle in March this year. Between March and September of this year, the RBI has raised its repo rate, or the rate at which it lends to banks, by 125 bps to 6% in phases. The central bank has also raised its reverse repo rate, or the rate at which it absorbs excess liquidity from the system, by 175 bps to 5%, besides hiking the CRR, or the portion of deposits that banks need to keep with the RBI, by 100 bps to 6%.
The RBI said that the policy actions are expected to:
* Sustain the anti-inflationary thrust of recent monetary actions and outcomes in the face of persistent inflation risks.
* Rein in rising inflationary expectations, which may be aggravated by the structural nature of food price increases.
* Be moderate enough not to disrupt growth.
::Fed unveils new US$600bn bond purchase program::
The Federal Reserve announced plans to pump hundreds of billions of dollars into the US financial system in yet another unconventional effort to try and jolt the US economy out of a deep slumber. The Fed will, in effect, print money to buy Treasury bonds worth an additional US$600bn by June 2011 in a bid to lower long-term interest rates and avoid deflation. The action should make it cheaper for Americans to borrow money, take out mortgages or refinance their houses, and for businesses to borrow funds in order to expand. But the big question remains whether they will take the bait or not.
The move was widely anticipated, but some experts and market pundits had expected the Fed to announce an even more aggressive package of bond purchases. Interest rates rose on financial markets following the FOMC announcement. The yield on 30-year Treasury bonds jumped 0.17% to 4.04% after the Fed policymakers said that concern that it's asset-purchase program will fuel inflation are "overstated." The financial markets had priced in the Fed's move for weeks, and stock indexes didn't move much after the announcement.
THE WEEK AHEAD:
::Fairwealth Securities::
"In the next session, Nifty has a good support around 6,245 and sustaining above 6,300 may attract more buying. Traders are suggested to buy at dips. Oil-gas and Finance stocks may attract more buying. Stock specific buying in banking stocks might also be seen."
::Canara Bank Securities (CanMoney)::
"Technically, Nifty exhibited a positive show and moved firmly after breaching the upper resistance of 6,210 & 6,250. For the day, Nifty has registered its PCR level at 1.01 against 0.94 as of previous trading session. Owing to good buying in blue chips, Nifty successfully closed above the vital 9, 14, 50 & 100 day`s SMA placed at 6,098, 6,084, 5,929 and 5,657 with a good margin; these levels may act as new supports, in coming sessions. VIX for the day was at a slightly lower level of 19.36% and indicating some volatility in market in the forthcoming sessions. RSI(14) for the day was at 66.36 levels and MACD was still below the signal line, thus combined together they are giving the signals of firm movement with positive bias in coming days."
TO BE CONTINUED......
