December 22, 2012

Weekly Pulse - Dec 22, 2012

Weekly Update - Dec 22, 2012

Why is market worried about US Fiscal Cliff?
Markets have corrected almost by 2% in last few days ahead of deadline of the US Fiscal Cliff. US Fiscal Cliff is considered to be the biggest road block for the global markets including India because, if the Fiscal Cliff deal is not reached that could have a huge impact on the global markets and economies including India.

Markets end lower on profit taking
Markets closed lower for the second straight week , amid weak global cues, weighed down by profit taking in Capital Goods and Private Banks. Sensex ended down by 75 points or 0.4% at 19,242, while Nifty closed by 32 points or 0.5% lower at 5,848.

In the broader markets, the Mid-cap ending marginally lower by 0.02%, while the Small-cap index ended by 0.4% lower. Among other sectoral indices Capital Goods, Oil & Gas, Bankex, and FMCG were the top losers while Metal and Auto indices were among the top gainers during the week.

Reserve Bank of India, in its mid-quarter policy review on Tuesday, maintained a status quo on key policy rates and left the cash reserve ratio unchanged. The central bank, however, reiterated there is scope for loosening monetary policy in January-March and said the easing of inflation gives scope to shift focus of its policy to growth. RBI kept the Repo Rate (R.R.) unchanged at 8% and also kept the banks' Cash Reserve Ratio (CRR) steady at 4.25%.

Engineering major Larsen & Toubro was the loser down by 3% on lack of fresh orders. FMCG major ITC ended by 2.7% lower at Rs 288 on profit taking after the stock recently touched a high of Rs 306 last week. Private bank shares which had rallied followed the approval of the Banking (Amendment) Bill also witnessed profit taking at higher levels. ICICI Bank ended down by 1.2% while HDFC Bank ended by 1.8% lower. Mortgage lender HDFC ended by 2.8% lower on concerns that home buyers continue to postpone availing of home loans in wake of the high interest rates.

Index heavyweight Reliance Industries ended down by 1.9% at Rs 839, while Telecom major Bharti Airtel slipped by 1.5% to end at Rs 307 after the CBI (Central Bureau of Investigation) Friday filed a charge sheet in connection with alleged irregularities in spectrum allocation during the NDA regime involving three telecom companies, including Bharti Airtel and Vodafone India, while pegging the loss at Rs 846 crore. Among the gainers metal shares toppped the list on the back of encouraging economic data from China, the world's largest consumer of metals. Tata Steel was the top gainer up by 8% followed by Hindalco, Jindal Steel and Sterlite Industries.

Auto shares held firm during the week on expectation of robust sales during the third quarter which comprises of major festivals. Tata Motors, Maruti Suzuki and Hero MotoCorp were among the top gainers in the sector. However, Mahindra & Mahindra ended lower after the company which bought its foreign partner stake in the struggling commercial vehicle joint venture, said that it will invest more money in the venture, which will eventually become a subsidiary. The company acquired 49% from its US joint venture partner Navistar for around Rs 175 crore and said that turnaround may happen only by 2014.

Government, late Monday, cleared the Banking Laws (Amendment) Bill in Lok Sabha, 2011, after Finance Minister P Chidambaram agreed to drop the contentious proposal on allowing banks to do futures trading. With this, the government cleared the decks for the Reserve Bank of India (RBI) to initiate the process to issue new banking licenses and widened the window for infusion of capital into the banking sector.

Further, the Government on Tuesday approved the much-awaited Companies Bill 2011, in Lok Sabha, making it mandatory for profit-making companies to spend on activities related to corporate social responsibility (CSR). If a company does not do so, it will have to explain the reasons for it. The changes in the Bill include provisions that make it mandatory for firms — those that have reported profits of Rs 5 crore or more in last three years — to spend at least two per cent of their average net profit on CSR activities. Companies failing to meet the obligation and not disclosing reasons for it in their books of account would face action, including penalty.

Investors are likely to keep a close on watch on the developments on the US 'fiscal cliff' and markets are likely to remain volatile in the early part of the week ahead of the expiry of December derivative contracts on December 27.

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