Indian Markets Thursday Wrap-Up: Lower Inflation Pampers Markets

Markets ended comfortably above the dotted line to close the day above that 10,000 level for the Sensex. The BSE-Sensex closed higher by almost 350 points. The NSE-Nifty was up around 100 points. Stocks from the mid-cap and small-cap indices also ended in the green. Realty and banking stocks led the pack of gainers on the bourses. Rupee closed at 46.94 against the US dollar. As regards global markets, while the Asian markets closed firm, the European markets too are trading in the green currently.

Inflation came down to 6.84% for the week ended 6 December 2008 from 8% a week ago. Inflation, which touched a peak of 12.91% in August, has fallen for the sixth straight week mainly on account of a fall in crude prices in the international market. The crude prices have dipped to about US$ 40 per barrel from a high of US$ 147 per barrel in July 2008.

In another move meant to ease recessionary pressures on the economy, the Reserve Bank of India (RBI) has advised banks to cut rates further, due to factors like the fall in inflation, easy liquidity and lower cost of funds. At the same time, it cautioned banks to monitor their credit portfolios closely and guard against asset liability mismatches or deterioration in credit quality. Banking stocks ended the day on a firm note.

As per a leading business daily, hotel room rates have seen a sharp 25% fall this month on the back of a 35% fall in occupancies across all the premium business hotels. To combat this slowdown, hospitality companies are planning to increase their focus on those segments whose demand has been affected to a lesser extent due to the lull in the economic environment. These include segments that cater to cabin crew, extended long-stay programmes and companies in the FMCG and oil rig space. The stock of ITC closed in the green while EIH closed almost flat.

As per a leading business daily, the government is soon going to announce its second stimulus package which will include sops for the auto, housing and steel sectors. Currently proposals are being examined to increase the limit for eligibility for low interest rate housing loans from Rs 2 m to Rs 3 m, increasing tax rebate on home loans, reducing auto loans by 2%, increasing depreciation and ensuring faster disbursal of CENVAT credit for the steel sector.

On the international front, a part of the US$ 700 bn will go towards extending a tax break to Hollywood. This tax break lets producers of films deduct capital expenditure as an expense instead of depreciating it.