PM takes stock of economy, reform hope keeps mkt happy
At the end of the week, on Friday, Indian equity benchmarks closed at a two-month high. The European markets too rallied after European leaders agreed to take emergency action to bring down Italy and Spain's spiraling borrowing costs on the first day of the summit.
As the week headed towards June expiry on Thursday, the market was looking forward to a slew of policy announcements from the Reserve Bank of India (RBI) and the government. The Euro Summit was also awaited. At the end of the week, on Friday, Indian equity benchmarks closed at a two-month high. The European markets too rallied after European leaders agreed to take emergency action to bring down Italy and Spain's spiraling borrowing costs on the first day of the summit.
The BSE benchmark gained 439.22 points (biggest closing gains in 2012) or 2.59% to close at 17,429.98 led by buying across sectors. Meanwhile, the NSE benchmark rose 129.75 points or 2.52% to 5,278.90 on Friday.
After Prime Minister Manmohan Singh stepped into the Finance Ministry, hopes of reforms or policy decision in the short term seems to have kept the market afloat, resulting in key benchmarks outperforming global perers.
Here is what happened in the past one week, starting Monday, in a chronological order.
RBI hikes ECB limit to USD 10 billion: Concern over the ailing rupee had been nagging the RBI and the country as a whole, for quite some time now. The final trigger came last Friday when the Indian currency hit a new record lifetime low of 57.22 per dollar. In an effort to boost the free-falling rupee, the central bank on Monday raised the limit of external commercial borrowing (ECB) to USD 10 billion. The regulator also hiked the limit of overseas investment in government bonds by USD 5 billion to USD 20 billion.
The RBI also reduced the lock-in period of investment to three years from five for foreign investment in government bonds up to USD 10 billion, including the additional USD 5 billion.
Moody's maintain stable outlook on India: Amidst the rating downgrades, Moody’s on Monday stepped up and said that it was maintaining a stable outlook on India's Baa3 rating as problems such as slower growth and higher inflation have hounded the Indian economy for a long time. Although, the ratings agency said that global and domestic factors, including potential shocks in agriculture, could keep India's growth below trend for the next few quarters, it was unlikely to become permanent features of the Indian economy.
Sesa Goa approves merger: In another development, shareholders of iron ore miner Sesa Goa have approved of the Sesa-Sterlite merger, against analysts’ expectation of some opposition. Company shares reacted to this piece of news and were up 1.26% at Rs 188.25.
Nomura cuts India's GDP forecast: So far it was a ratings downgrades that was following India. Whether it was Standard and Poor's (S&P) or Fitch, international rating agencies had raised question on India's growth potential in the absence of structural reforms. On Tuesday, Nomura cut India's GDP forecast to 5.8% in FY13. Citing high inflation, policy inaction and a weakening global environment, Nomura pointed out the rationale behind its bearish outlook on India.
FM Pranab Mukherjee resigns: The UPA's presidential nominee, Finance Minister Pranab Mukherjee called it a day and resigned from office on Tuesday to compete for the post of the 13th president of India.
Kingfisher engineers quit: The already crippled Kingfisher airlines is now seeing a steady flight of engineers on account of non-payment of salaries. The near-bankrupt carrier had to already deal with pilots and other staff quitting over salary issues. About 80 engineers have left the beleaguered carrier over the past four to five months and news reports on Wednesday suggest, more engineers could quit the company.
PM takes stock of economy: Prime Minister Manmohan Singh, who now holds the finance portfolio after Pranab Mukherjee’s resignation, met Deputy Chairman of Planning Commission Montek Singh Ahluwalia and PMEAC Chairman C Rangarajan on Wednesday to take stock of the economy amidst slowing growth, high inflation and damp investor sentiment.
NTPC signs FSA with Coal India: Adhering to the directives issued by the Prime Minister's office, state run NTPC agreed to sign the fuel supply agreement with Coal India at a minimum assured supply of 65% on Wednesday.
PM's first day as FM: Prime Minister Manmohan Singh's first day in office as the country’s new finance minister was nothing short of an action packed day. A host of issues ranging from clarifications on the controversial General Anti-Avoidance Rules (GAAR) to slashing petrol prices by Rs 2.46 per litre and Rs 3.1 litre. Along with it, the the finance ministry had asked market regulator SEBI to relook its stance on entry load charged by mutual fund (MF) distributors, in order to make MFs attractive to distributors.
Clarification on GAAR: After reports of a clarification being issued by the Finance Ministry on the retrospective amendment of section 9 of the General Anti-Avoidance Rules (GAAR), it was learnt that the controversial rules would be deferred till after the 2014 elections or may be completely dropped. Global investors and business firms were quite apprehensive about this clause and led to some concerns. By, Friday it was known that GAAR was to be finalised only after consultation with the Prime Minister's Office.
MFs to be attractive for distributors: The finance ministry may ask market regulator SEBI to relook its stance on entry load charged by mutual fund distributors. It was known on Thursday that the two will think of ways to make incentives for mutual fund distributors more attractive, which in course of time will revive the industry. Former SEBI chairman CB Bhave had scrapped the entry charges, a move which benefitted the customers, but put mutual fund houses under financial duress.
RBI's Fifth Financial Stability Report: The Reserve Bank of India on Thursday released its Fifth Financial Stability Report in which it chalked out concerns regarding deteriorating asset quality and domestic & global macro worries. The report, however, said a banking crisis was unlikely.
HSBC Mauritius sells stake in Axis,Yes Bank: HSBC's Mauritius arm, registered as an Foreign Institutional Investor (FII) in India sold nearly 5% of its stake in Axis Bank and Yes Bank. The deal worth Rs 2400 crore was a major block deal announced on Thursday.
Cairn UK to sell 3.5% in Cairn India: In another major deal, Cairn Energy of UK is scheduled to sell 3.5% stake in Cairn India for about USD 370 million. The deal is most likely to be one of Cairn UK's series of deals to sell its residual stake in the Indian company because it needs money to develop oil fields in other parts of the world.
Year's biggest single day gain for Sensex: A cheerful market ended the week on Friday with the biggest single day gain of 439 points in 2012. Upbeat global market sentiments and clarification on the tax-avoidance rules seems to have caused this major rally.
First day of EU summit: The much awaited European Union summit started on Thursday and on Friday European leaders came up with good news. They not only agreed to stabilise the debt and funding woes of Italy and Spain, the 17-nation currency bloc agreed that euro-area rescue funds could be used for sovereign debt purchases without forcing countries to adopt extra austerity measures. Discussions are on for creating a single supervisory body for the euro zone banks by the end of this year.
Vodafone sends rejoinder to government: Seeking an undertaking on the retrospective amendment, telecom biggie Vodafone has sent a rejoinder to the government on Friday. Vodafone had earlier sent a trigger notice for arbitration under the bilateral investment treaty with Netherlands to the government asking why the retrospective amendment was being brought in and highlighted that it is against the investment spirit of the treaty. The government had replied saying that the tax refund has been made as per the Supreme Court order and hence there is now no case for arbitration.
Proposal for 49% FDI in pension & insurance: A draft bill that will lead to enhanced FDI in the insurance and pension sectors is likely to be taken up by the cabinet shortly. It was known on Friday that the finance ministry has sent a final cabinet note which proposes 49% FDI in both these sectors.
HDFC Bank cuts base rate and BPLR by 20 bps: India's second largest private sector lender HDFC Bank on Friday reduced its base rate by 20 basis points to 9.80%, effective from June 30. With this, its benchmark prime lending rate (BPLR) too decreased to 18.30%. After the Reserve Bank of India (RBI) slashed key policy rate by 50 bps in its April annual monetary policy, it is perhaps the first big lender to cut its key lending rates.
Hence, the week ended on a positive note for the market and would probably keep sentiments buoyed on hopes of further policy action and reforms.