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BSE Sensex ends up 1.6%; Asian Stocks Recover

10 August, 2011

The BSE Sensex gained more than 250 points on Wednesday, snapping a six-day losing streak, tracking a global equities rebound after the US Federal Reserve promised to keep interest rates near zero for two more years.

The main 30-share BSE index ended up 272.6 points, at 17,130.51, with 23 of its components in advancing. It rose as much as 2.3 per cent in opening deals.

The 50-share NSE index ended up 1.74 per cent at 5,161 points.

At 11:49 am, the 30-share BSE index  was up 1.81 per cent at 17,163.01 points, with 25 components advancing, and rose as much as 2.3 percent in opening deals. The index has fallen nearly 8 per cent over six days.

 “While India does not remain immune to a contagion following the U.S. debt downgrade, as of now we expect the impact on the Indian economy to be limited. Aside from the current short-term volatility, we expect India to do well over the longer term,” 

Alexander Treves, head of Investments-India at Fidelity International, told Reuters Insider. Cautious foreign institutional investors have sold Indian equities worth about $803 million so far this month, after investing a net $2.3 billion until July end.

Major Asia indexes gained between 1 and 3 percent, after Wall Street shares on Tuesday posted their biggest one-day gain in more than two years, when the S&P 500 index leapt 4.7 per cent.

“The U.S. market bounced back strongly, so there was obviously an impact of that on the market. But nonetheless valuations have also become attractive,” said Gajendra Nagpal chief executive at Unicon Financial Intermediaries.

“I would not really want to term this as a corrective rally. I do believe that valuations are attractive and some smart money would come and chase stocks,” Nagpal said.  

Reliance Industries, which has the highest weight on the main index, rose more than 2 per cent. The stock has lost more than a quarter of its value so far in 2011, mainly weighed down by worries of slowing production from its showcase gas fields off India’s east coast.

Bluechip tech stocks Tata Consultancy Services and Infosys were up 3 and 4 per cent, respectively. They have lost nearly 15 and 14 per cent, respectively, over the past six sessions, as worries over the global economy dented outlook for the outsourcing business.

Software services exporter Mahindra Satyam  jumped as much as 15 per cent after it reported late on Tuesday that quarterly net profit more than doubled, on higher client spend and margin expansion.

Auto maker Mahindra & Mahindra , whose core business includes tractors, rose more than 5 per cent after Morgan Stanley upgraded it to “overweight” from “equalweight.”

Morgan Stanley said the company would benefit from weak commodity prices, margin expansion in the second half of fiscal year 2012 and overall lower materials costs.

Domestic sales of trucks and buses, a key pointer to economic activity, rose 23.7 per cent to 64,241 vehicles in July, an industry body said. Car sales, however, fell 15.8 per cent in July hit by higher interest rates and vehicle costs.

Commodity prices rebounded on Wednesday, after the US central bank’s move, however, the markets remained wary about its implication.

The MSCI’s measure of Asian markets other than Japan was up 2.74 per cent, while Japan’s Nikkei  rose 1.05 per cent and South Korea’s Kospi was higher by 0.27 per cent.

The 50-share NSE index was 1.91 per cent higher at 5,169.3 points. In the broader market, 1,250 advances far outnumbered 122 declines on volume of 158.1 million shares.

Asia Stocks Bounce After Fed Move Stems Rout

Asian stocks clawed back some lost ground on Wednesday, following a rebound in US shares, after the Federal Reserve made an unprecedented pledge to keep interest rates near zero for at least two years, stemming a global equity rout for the time being.

Financial bookmakers expected Europe’s main indexes, which finished the last session in positive territory, to open up 0.4-0.8 per cent, but S&P 500 futures fell 0.4 per cent, suggesting at least a pause in Wall Street’s sharp rally.

“It’s possible the bottom has been met but it is too early to say so,” said Albert Hung, chief investment officer at Sydney-based Alleron Investment Management.

“Normally when you see this sort of movement you need another two weeks to be sure the bottom has been found.”

Investors remained wary about the implication of the Fed’s move — that it expects the U.S. economy to remain weak far longer than previously forecast — and this supported demand for safe havens such as gold and the Swiss franc.

“Volatility is calming down from an extreme level. Clearly there’s going to be considerable concerns still, but the market had gotten seriously carried away and gone to an extreme of fear,” said Greg Gibbs, strategist at RBS in Sydney.

World stock markets had been tumbling since the start of August on fears of a slide back into recession for the United States, reinforced by a downgrade of the U.S. credit rating on Friday, and the ever-expanding euro zone debt crisis.

MSCI’s all-country world stock index remained about 16 per cent below its May peak on Wednesday, after slipping as far as 20 per cent, the generally accepted definition of a bear market, on Tuesday.

Tokyo’s Nikkei rose 1.3 per cent and MSCI’s broadest index of Asia Pacific shares outside Japan gained

about 3.1 per cent, led by the materials sector, which jumped more than 3.5 per cent. The benchmark has fallen around 12 per cent in August. Wall Street shares posted their biggest one-day gain in more than two years on Tuesday, when the S&P 500 index leapt 4.7 per cent.

“I doubt share prices will keep rising from current levels as central banks’ policies are not helping to lift the real economy, they are simply pumping liquidity by purchasing bonds and keeping rates low,” said Jun Fukashiro, chief fund manager at Toyota Asset management.

Australia’s resource-heavy index gained 2.7 per cent.

Commodities such as oil and industrial metals, whose demand is related to economic growth, and commodity-linked currencies such as the Australian dollar rose.

Confidence Shaken

While the U.S. downgrade from Standard & Poor’s was a big symbolic blow, investor confidence has also been shaken by data suggesting the world’s biggest economy was stalling and even second-ranked China was facing headwinds.

There was some reassurance from China on Wednesday, with data showing export growth accelerated in July, outpacing analysts’ consensus forecasts.

But whilst the numbers demonstrated that China is not dependent just on demand from the United States, few doubt that a “double dip” in the developed world would hit Asia.

“The economic reality is that if the U.S. enters into a recession, then no matter how strong growth in China is, China will be negatively impacted,” said Victor Shum, an analyst at energy consultancy Purvin and Gertz.

A Reuters poll showed Wall Street economists shortening the odds on the United States lapsing back into recession to around one-in-three, heightening expectations the Federal Reserve may launch another round of unconventional credit easing.

Carry Trade Back

The Fed said on Tuesday that U.S. growth was proving considerably weaker than expected, suggesting inflation will remain contained for the foreseeable future.

The central bank’s decision on rates is likely to be good news for the so-called carry trade, in which traders use cheap dollar loans to fund buying riskier, higher-yielding assets.

“Once volatility eases, they should be in business until at least mid-2013,” wrote Rabobank analyst Philip Marey in a report.

Against the Swiss franc, the dollar bought around 0.7250 francs , having plunged 6 per cent at one stage on Tuesday to a record low around 0.7067.

The dollar dipped to around 76.90 yen , not far from the all-time trough of 76.15 reached in mid-March.

The euro also touched a record low against the Swiss franc at around 1.0075 , before recovering some ground to 1.0395 francs. But the single currency jumped on the dollar to $1.4345 , putting more distance from last week’s trough around $1.4054.

Continued strength in the Swiss franc and yen keeps alive the prospect of further intervention by the Swiss and Japanese authorities, after both took steps to weaken their currencies last week.

Japanese government bonds rose broadly after the Fed statement pushed U.S. Treasury yields to new lows. The benchmark 10-year JGB yield eased 0.5 basis point to 1.035 per cent.

Gold firmed from late New York levels to around $1,753 an ounce, after striking the latest in a string of records around $1,778 on Tuesday.

U.S. crude oil climbed back above $80 a barrel, rising about 3 per cent to trade around $81.65 , while London metal exchange three-month copper rose around 2.3 per cent , climbing back towards $9,000 a tonne.

“The Fed statement will give a boost to overall commodity markets as it is more like injecting confidence into the markets,” said Ker Chung Yang, an analyst at Phillip Futures in Singapore. “But there are uncertainties over U.S. economic growth and China.”

 


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BSE Sensex ends up 1.6%; Asian Stocks Recover

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