The market may edge higher on positive cues from global markets and on likely government measures to pump prime the economy. However, Indo-Pak tension after the major terror strike in Mumbai last week will cap the upside.
Chinese stocks led gains in Asian stocks after China on Wednesday, 3 December 2008, announces measures whereby the financial policy would be harnessed to support the economy. The Shanghai Composite was up 3%. Other Asian share nudge higher on buying in defensive plays such as drug makers or domestic demand-driven plays. Key benchmark indices in Hong Kong, Singapore and South Korea were up by between 0.06% to 1.9%. But Japanâ€(TM)s Nikkei had slipped into the red in contrast to earlier gains.
China will make use of required reserves as well as interest rates and the exchange rate to ensure ample liquidity in the banking system, the government said on Wednesday. The State Council, China's cabinet, also approved measures aimed at stabilising the domestic stock market, boosting bond issuance and increasing the supply of credit.
Defensive stocks lifted Wall Street on Wednesday, 3 December 2008, in spite of new data -- including large job losses among US employers and a slumping service sector -- that failed to inspire confidence in a US economy already in recession for a year.
Other economies worldwide are faring no better. A corporate survey in Japan signaled the country's economic performance in the third quarter may have been even worse than first reported.
Closer home, the Indian government is slated to announce a slew of measures at the weekend to pump prime the economy. The likely measures include a Rs 2000-crore export package, a further relaxation in external commercial borrowings norms and Rs 15,000-crore budgetary support for infrastructure.
The Reserve Bank of India (RBI), meanwhile, is expected to cut repo and reverse repo rates to the extent of 200 basis points and 125 basis points respectively at the weekend.
Meanwhile, the Indian government is reportedly considering various options including a strike on Pakistan to dismantle its terror bases in response to the recent Mumbai terror attacks. As a strike on Pakistan could lead to a full scale war between the two nuclear armed countries, India is maintaining a cautious approach and wants to gauge every possible ramification of its decision, reports suggest.
Tension between India and Pakistan have mounted after the Mumbai attacks. India has blamed Islamist militants based in Pakistan for the attacks.
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