Economic assurances spark rally

Mon, 30 Nov Closing

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Indian markets managed to show resilience to poor global economic sentiments and did not let go of the strong gains locked in since the start of the day. Assurance from the Prime Minister's economic advisory council that it did not expect the Dubai debt crisis to trigger another global meltdown also significantly boosted investor confidence. What triggered the rally, however, were unanimous upward revision of India's GDP growth estimates for this fiscal by various government and economic agencies.

The BSE Sensex and the NSE Nifty closed with gains of around 294 points (1.8%) and 91 points (1.8%) respectively. Stocks from the mid and small cap spaces also followed suit. The BSE Midcap and BSE-Smallcap indices closed higher by around 1.7% and 2.1% respectively. The rupee was trading at 46.45 to the US dollar at the time of writing.

Most Asian markets closed strong today. Hong Kong and China (each up more than 3%) were the biggest gainers. Following these were the markets of Japan (up 2.5%) and Korea (up 2.0%)

Assurances from the United Arab Emirates’ central bank that it would support the country's local and foreign banks in the event of rise in NPAs from Dubai diffused the panic in global financial markets. Dubai's US$ 80 bn debt woes had sent shock waves around the world last weekend, showing how fragile the global economic recovery is. However, investor interests in emerging economies seem to indicate that fund flows will continue to seek relatively safe and high growth investment destinations.

Meanwhile, the Indian central bank is not letting go of its conservative stance. And rightly so. The RBI is likely to turn down a fresh request from banks to increase the exposure limit to a single corporate group. While the banks have requested an exposure limit of 40% (of the bank's capital), the RBI believes that such an exposure to one group of borrower would be imprudent. Internationally, the exposure limit includes individuals and groups and is around 15-25%. Banks led by SBI had approached RBI to relax group exposure norms for infrastructure sectors and companies that enjoy a high level of credibility. However, the central bank is in no mood to consent. Stocks from the banking sector including Bank of Baroda and Corporation bank closed higher.

As per a business daily, India plans to invest Rs 1.6 trillion (US$ 35 bn) during 2012-17 in additional power generation capacity from renewable resources. According to the Ministry of New and Renewable Energy, the country has outlined capacity addition of 25,500 megawatts during the 12th Plan (2012-17) that will need total investment to the tune of Rs 1.6 trillion. While the executions risks are abound in the said plan, successful completion of the same, even if delayed will lend India that much needed self sufficiency in power supplies. India hopes to raise the total installed capacity of renewable power to 48,000 MW by 2017 from 15,539 MW currently.

Globally, the new investments in renewable energy were down 53% YoY in 2009, as per a Wall Street Journal report. Government stimulus money that seeks to give a fillip to the industry has been slow to materialize this year. Approximately US$ 150 bn in global government stimulus spending has been proposed for clean energy projects, about half of which is from the US.