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BSE SENSEX : The government and the central bank take action

09/18/2012 | 09:02am
Opinion : Bullish above USD 18800
Target price : USD 20000 Potential: 7.86%

The Indian stock market rose in early this week. Growth for the first quarter of fiscal year 2012/2013 is 5.5%. This level is far from the rate recorded in the previous decade but higher than analysts' expectations and the last quarter of 2011/2012. In addition, several measures have boosted the market. The Indian central bank has decided to cut the cash reserve ratio for the lenders. The government has also decided to relaunch the liberalization of its economy.

Indian GDP grew by 5,5% in the April-June period. Manufacturing activity grew by only 0.2% from the previous quarter. The economy was mainly driven by the construction sector which recorded an increase of 10.9%. This high activity is the result of decisions by the central bank to lower earlier this year interest rates to encourage investment. However, the organization did not renew the operation on Monday. The central bank wants to channel excessive inflation and stabilize the rupee. It decided to lower the amount of deposits lenders must set aside as reserves.

The main measure comes from the Indian government. It decided to open the retail sector and air transport to foreign investors. Large companies will join with local partners or sell directly to consumers for the first time in the country's history. These decisions allow groups like Carrefour or Wal-Mart to enter a retail market estimated at 340 billion euros. Analysts welcomed the decisions taken by the government but remain cautious. Some of them point out that in the past India backed down on reforms.

Technically the trend remains bullish in daily data. The index is currently testing a major weekly resistance around 18 500/18 700 points. A weekly close above this level would open the way to the 20 000 points area. On the downside, a failure to break the 18 500 points level would cause a consolidation phase towards 17,800 points which also refers to the 20-day moving average. The BSE 30 SENSEX FUTURE (code : BSXFUT on the futures market) could allow you to fully profit from a next bullish acceleration of the index.

BSE SENSEX : BSE SENSEX : The government and the central bank take action
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