The Indian stock market declined for second consecutive week tracking weak global shares after
a Republican proposal to deal with a US fiscal crunch failed to get enough support, deepening
uncertainty over the US can avert the “fiscal cliff” of automatic spending cuts and tax increases
set to start Jan. 1.
Some key highlights during the week
• The RBI kept repo rates – the rate at which RBI lends to banks—and cash reserve ratio (CRR)
unchanged. However, the central bank has hinted that it may cut policy rates next month. The
government’s bold declaration not to exceed the original borrowing target of Rs.5.7 lakh crore
for the current fiscal has been a great comfort for the banks.
• Global rating agency Standard and Poor’s (S&P) has said it expects India to grow by 6.5%
during 2013, amidst the possibility of global economic recovery continuing during the year.
• Foreign direct investment inflows into India jumped 67% in October to $1.94 billion, a
government statement said on Friday, but inflows for the current financial year were still down.
Total FDI inflows in the first seven months for the current fiscal year that began in April were
down 42% from a year earlier at $14.79 billion.
• India’s holding of US government debt securities has declined for the second consecutive
month, even as many other countries including China, Japan, Brazil and Russia hiked their
exposure to American treasury bonds. As per the latest data released by the US Department
of Treasury, India’s holding of treasury securities stood at $58.9 billion (over Rs 3,20,000
crore) at the end of October 2012 — marking the second straight month of decline after an
uptrend for seven continuous months. However, the holdings of countries like China, Japan,
Brazil, Switzerland, Russia, France and Canada rose during October. At the end of the month,
India was the 18th largest holder of the US treasury bonds, while China was the largest
foreign owner of these securities followed by Japan, Brazil, Taiwan, Switzerland, Russia,
Luxembourg, Hong Kong, Belgium and the UK in the top ten.
• The Government lowered the growth projection for the current financial year to 5.7-5.9%,
while pitching for supportive monetary and fiscal policies to improve investor confidence. The
economy, it added, would have to record a growth rate of 6% in second half of the current
financial year to reach the desired growth rate. It grew by 5.4% during April-September 2012-
13. The economic survey had pegged the growth rate at 7.6% for this fiscal. To achieve 5.7-
5.9% growth, the analysis said, “both fiscal and monetary policy, however, would need to be
supportive to sustain investor confidence. The government will also have to address the
concerns relating to structural supply side bottlenecks”.
US Markets
US markets weakened this week, as a new setback in talks to avert a U.S. fiscal crisis and
evidence of Europe’s ongoing economic difficulties stoked investor nerves. For the week, the
three major U.S. stock indexes posted gains, with Dow Jones up 0.4%, S&P 500 up 1.2% and
Nasdaq Composite Index up 1.7%.
Key Highlights during the week:
• The December 2012 Empire State Manufacturing Survey indicates that conditions for New
York manufacturers continued to decline at a modest pace. The general business conditions
index was negative for a fifth consecutive month, falling three points to -8.1. The new orders
index dropped to -3.7, while the shipments index declined six points to 8.8. At 16.1, the prices
The markets may remain volatile next week as traders roll over positions in the F&O segment
from the near month December 2012 series to January 2013 series. The near-month December
2012 derivatives contracts expire on Thursday, December 27, 2012. Investors are likely to keep
a close on watch on the developments on the US ‘fiscal cliff’ which could especially affect
software service exporters such as Infosys and TCS. Indian companies will start unveiling Q3
December 2012 results from mid-January 2013.
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