FDI Moves Likely To Shoot Markets Upward

The markets rallied on Friday as the government took some action on the policy front to boost the fiscal policy in order to provide stimulus for the economy to grow. This action on the domestic front was around a hike in diesel prices which was taken to be a bold move. The international economic environment too was conducive of growth with the U.S. finally announcing the third round of quantitative easing (QE3). With this the Indian markets closed the day in green. While the Sensex closed 443.11 points higher at 18,464.27, up by 2.46 per cent, the Nifty closed 142.3 points higher at 5,577.65, up by 2.62 per cent. Today too the markets are likely to see similar gains, but due to the government’s foreign investment program.

Globally, there was a rally seen in the equity markets worldwide. On Thursday, the Federal Reserve announced that they would buy USD 40 billion worth of mortgage-backed securities (MBS) per month as a part of QE3. With this the U.S. stocks rallied with the Dow, S&P and Nasdaq closing higher by 0.39 per cent, 0.41 per cent and 0.89 per cent respectively. Investors in the U.S. are now closely eyeing the housing data for it to provide more clarity on the picture.

Europe too saw heavy gains spurted by both, QE3 and the European Central Bank (ECB) pledging to provide unlimited funds to countries via its bond-buying program. This however would be provided for when a country asks for help. At the same time, Italy lifted its ban on covered short selling of bank and insurance stocks but imposed a ban on naked short selling of stocks. All of these factors led to the FTSE, DAX and CAC closing higher by 1.65 per cent, 1.39 per cent and 2.28 per cent respectively.

The Asian markets today opened higher after seeing hefty gains on Friday. The Hang Seng and Nikkei are trading higher by 0.55 per cent and 1.82 per cent respectively while the Shanghai Composite is lower by 0.23 per cent.

These drastic changes in the global environment had some unsurprising dynamics in the currency and commodities markets. While the commodity prices shot up and crude touched USD 116.71 per barrel, gold soared higher to touch Rs 31,925 per 10 gm. The Indian rupee was significantly lower on the back of QE3 and was seen trading at Rs 54.727 to the dollar.

On the domestic front, Friday was marked by data on the Wholesale Price Index (WPI) that indicated an inflation of 7.55 per cent in August 2012 as compared to 6.87 per cent in July 2012. With action on the fiscal front, it would not be interesting to see how the RBI works towards easing monetary policy. After closing hours on Friday the government allowed 51 per cent foreign investment in multi-brand retail, 49 per cent in aviation and raised the cap from 49 per cent to 74 per cent in broadcasting. This is a major move in favour of inviting foreign funds to spur domestic growth. This long-awaited step will definitely cheer the market. This was also followed with the divestment program announced for four public sector undertakings (PSUs).

Also under consideration are future plans to further boost economic growth in India. The government is in talks to fast-track National Investment Board, relax External Commercial Borrowings (ECB) policy, make borrowing easier for Non-Banking Financial Companies (NBFCs), and boost capital flows in the markets. These already taken moves and prospective action on the fiscal front, combined with a highly favourable international scenario, is likely to give the markets a tremendous boost in today’s trading sessions.