Sensex recovers in late trade after initial China jitters
13 Jan 2010
The Sensex bounced back in the second half of trade and recouped nearly half of morning losses, on the back of buying interest in technology for the second day running, realty, cement, power and select metal stocks. Heavyweight Reliance Industries remained supportive. Looking at this recovery, it seemed that the markets factored in China's move of rate tightening; The People's Bank of China increased CRR by 50 bps on Tuesday after five quarters of ultra loose monetary policies since 4Q2008.
It has cut liquidity to curb overheating. There were reports suggest that Chinese banks had given loans worth $ 9 trillion yuan to the people of China raising concerns over credit bubble. "Its impact on earnings and economic activity in China will not be material," said Adrian Mowat, Chief Asian and Emerging Market Equity Strategist at JPMorgan. "It is a signal that the economy is strong and the current policy is to reverse pro-growth strategies put in place in response to the credit crunch and synchronised global recession."
However, selling continued in banking and auto stocks on the back of likely rate hike by RBI (Reserve Bank of India). Stocks also saw some buying at lower levels in late trade. The RBI's monetary policy review is scheduled on January 29.
"We believe that strong incoming growth data and increasing inflation risks warrant at least a 25 basis points hike in the reverse repo rate," Morgan Stanley economists Chetan Ahya and Tanvee Gupta said. "In addition, we do not rule out the possibility of a 25 basis points hike in the repo rate and/or 50 basis points hike in Cash Reserve Ratio," they added.
Bharti Airtel, BHEL, Sterlite Industries, Cairn India, Sun Pharma and ITC were the other losers in trade today.
The 30-share BSE Sensex closed at 17,509.80, up 87.29 points or 0.5%, after seeing recovery of 233 points from day's low of 17,276.46. The 50-share NSE Nifty showed recovery of 64.4 points from intraday low of 5,169.55, before closing at 5,233.95, up 0.45% or 23.55 points.
