Pre market 07 Jan 2009

The market may extend strong gains of the past few days on firm Asian stocks, resumption of buying by foreign funds and on reports that state run banks are likely cut lending rates further next month. But concerns about Q3 results may keep a lid on prices.

Asia-Pacific stocks extended recent gains on Wednesday, 7 January 2009, on hopes for a US economic stimulus package. Key benchmark indices in Japan, Hong Kong, Singapore, South Korea, Australia and Taiwan were up by between 0.07% to 1.89%

US stocks gained on Tuesday, 6 January 2009, on the increased likelihood of a government stimulus package after the release of minutes from the last Federal Reserve policy meeting painted a dismal picture of the US economy. The Dow Jones industrial average was up 62.21 points, or 0.69%, to 9,015.10. The Standard & Poor's 500 Index gained 7.25 points, or 0.78%, to 934.70. The Nasdaq Composite Index added 24.35 points, or 1.5%, to 1,652.38.

US President-elect Barack Obama's proposed package of spending and tax-cut measures is estimated at nearly $775 billion over the next two years.

Closer home, foreign institutional investors (FIIs) have resumed buying. As per provisional data released by the stock exchanges after trading hours, foreign funds on Tuesday, 6 January 2009, bought shares worth a net Rs 374.02 crore. Foreign funds had bought shares worth a net Rs 530 crore in three trading sessions from 1 January 2009 to 5 January 2009. After a sustained inflows earlier in the month in December 2008, FIIs had turned sellers towards end of that month.

Coordinated policy measures from the central bank and the government to boost sagging growth has boosted the bourses. The BSE Sensex jumped 1,007.01 points or 10.79% to 10,335.93 on 6 January 2009 from a recent low of 9,328.92 on 26 December 2008.

The Reserve Bank of India (RBI) on Friday, 5 January 2009, cut the repo rate and the reverse repo rate by 100 basis points each, with immediate effect. Repo rate is the rate at which RBI lends to commercial banks and reverse repo rate is the rate at which RBI accepts deposits from banks. After the latest cuts, the repo rate is now at 5.5% and the reverse repo is now at 4%, the lowest ever.

The RBI also announced a cut in cash reserve ratio, the proportion of deposits banks must keep with the central bank, by 50 basis points to 5% with effect from 17 January 2009. Lower interest rates may revive the domestic economy which has been slowing faster than expected due to high interest rates and the global financial crisis.

Complementing monetary easing by the RBI, the government enhanced the spending power of states with specific measures to boost credit availability in the second fiscal stimulus package. It offered additional sops to exporters and the small-scale sector, besides raising the level of protection for cement and steel sectors a tad. It has also incentivised purchase of commercial vehicles. Both the RBI and the government measures were announced after trading hours on Friday, 2 January 2009.