Sensex

Friday, January 25, 2008

DG - What Stimulates the Economy?

What Stimulates the Economy?

"Economic stimulation" is the phrase of the day. Amid mounting fears of a U.S. recession, Congress and the White House have announced a deal on stimulating legislation that would give most U.S. tax filers refunds of $600 to $1,200--more for those who have children.

Of course, when the economy starts to slide, it's natural to look for ways to stimulate it. The trick is coming up with the right strategy. Fortunately, the world is full of economists ready to give you advice. Unfortunately, they rarely agree with each other, so you'll have to choose from their competing theories. Here a quick review of three fiscal policy ideas you could adopt--if you decide to run for office.

Idea #1: Create Jobs

That's what British economist John Maynard Keynes thought. Keynes learned classical economics, which held that market forces alone could produce full employment and a robust economy. Yet he worked during the Great Depression, when it looked like high unemployment might never go away.

It was a vicious circle. High unemployment meant low demand, since fewer consumers were drawing a good salary. And once production outstripped demand, businesses cut costs by laying off even more workers.

Keynes's solution: create jobs. Governments can spend revenue on public works projects, artificially creating jobs for the unemployed. That will increase their buying power and lift consumer demand. Once businesses see this increase in demand, they will ramp up production, hire new workers, and eliminate the need for the government spending.

Idea #2: Cut Taxes

As Congress and the president would tell you today, the economic rationale for cutting taxes is straightforward: tax cuts can put more money in people's pockets. Like government spending to create jobs, they can increase consumers' buying power and lift consumer demand.

"Supply-siders" go further, arguing that it's not just about increasing consumer demand. They point out that high taxes can reduce people's incentive to work and invest--that you're less likely to try to make a buck if the IRS takes 70 cents than if the IRS takes 35.

So, they say, cutting taxes--especially high taxes that distort people's choices--can make markets work more efficiently and spur overall economic growth. Some even argue that cutting taxes can increase tax revenues, as the tax cuts will have such a stimulating effect on the economy that tax revenues will actually rise despite the lower rates.

Idea #3: Go on Vacation

Economists like to talk about "three lags" that hamstring efforts to stimulate the economy: the time it takes for policymakers to realize there are problems, the time it takes for them to do something about it, and the time it takes for their efforts to have a measurable effect.

By the time these three lags have run their course, the economy might well have changed direction--and your stimulus policy could do more harm than good. So, some economists think that the best stimulus is no stimulus at all: take a break, leave the economy alone, and you can be sure at least that you won't make things worse.

What's the Fed Got to Do with It?
"Okay," you say, "but you haven't even mentioned the Fed. Its rate cut this week made big news. How does that work?"

The Federal Reserve System is America's central bank. Created by Congress in 1913, it consists of a Board of Governors in Washington, DC, 12 regional Federal Reserve Banks in big cities from Boston to San Francisco, and 25 branches in other big cities.

The Board of Governors gives the Fed its marching orders. But the individual Reserve Banks maintain significant control over their day-to-day operations, including:

  • Holding the cash reserves of other banks and loaning money to them
  • Putting new currency into circulation and taking old currency out (every dollar is a "Federal Reserve Note")
  • Providing checking accounts for the U.S. Treasury and acting as the U.S. government's "fiscal agent"
  • Collecting and processing millions of checks each day

Essentially, the Fed provides banking services to America's banks and to Uncle Sam. That's the nitty-gritty part of its job. On the more glamorous side, it also develops and implements the nation's monetary policy--and in the process influences interest rates.

 

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DG - FW: Sharekhan Post-Market Report dated January 25, 2008

 

 

From: The Sharekhan Research Team [mailto:marketwatch@research.sharekhan.com]
Sent: 25 January 2008 19:04
To: The Sharekhan Research Team
Subject: Sharekhan Post-Market Report dated January 25, 2008

 

 

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January 25, 2008

 

Index Performance

Index

Sensex

Nifty

Open

17,504.00

5,035.05

High

18,406.25

5,399.25

Low

17,504.00

5,035.05

Today's Cls

18,361.66

5,383.35

Prev Cls

17,221.74

5,033.45

Change

1,139.92

349.90

% Change

6.62

6.95

 

Market Indicators

Top Movers (Group A)

Company

Price 
(Rs)

%
chg

Gainers

Brigade Enterprises

331.50

29.97

Chambal Fertilizers

52.40

19.91

Jindal Steel

2,325.75

19.78

i-flex Solutions

1,150.00

19.41

GMR Infra

194.40

19.34

Losers

Wyeth

435.00

-5.03

RCF

95.95

-4.95

National Fertilizers

62.70

-4.93

HMT

104.70

-4.12

Mirc Electronics

23.70

-4.05

Market Statistics

-

BSE

NSE

Advances

1,558

912

Declines

1,164

279

Unchanged

36

8

Volume(Nos)

27.80cr

51.36cr

 Market Commentary 

Unabated rally

The market rallied sharply and closed above the 18,300 mark on strong buying in realty, metal, and banking stocks.

The market displayed tremendous strength on firming global cues. The Sensex went into a major recovery mode after yesterday's fall and surged by 

 

over 1,150 points during the intra-day trades. The rally in Asian markets cheered investors, and the Sensex had a gap-up opening at 175,04, up 282 points. Realty, metal and banking stocks led the rally and the respective indices posted over 8-10% gains on Bombay Stock Exchange (BSE). Firm close in major Asian indices and surge in European markets also helped the sentiment remain bullish, with Sensex crossing the 18,000 mark by the afternoon and maintaining upwards bias thereafter. Sustained buying in frontline stocks saw the Sensex surge past the 18,300 mark to touch the day's high of 18,406 towards close. The Sensex ended the session by gaining 1,140 points or 6.62% at 18,362, while the Nifty added 350 points or 6.95% at 5,383. 

The breadth of the market was positive. Of the 2,758 stocks traded on the BSE 1,558 stocks advanced, 1,164 stocks declined and 36 stocks ended unchanged. Among the sectoral indices the BSE Realty Index flared up by 10.41%, the BSE Metal Index rose 9.73% and the BSE Bankex Index moved up by 7.53%. The other indices also ended with gains over 4-6% each.

All the Sensex stocks ended at higher levels. Hindalco flared up 14.01% at Rs173, Reliance energy shot up by 11.81% at Rs2,030, ICICI Bank zoomed 11.16% at Rs1,259, L&T moved up by 9.95% at Rs3,890, NTPC scaled up 9.11% at Rs222, Bajaj Auto surged by 9.02% at Rs2,300, M&M jumped by 7.76% at Rs674 and Tata Motors gained 7.70% at Rs712. 

Over 1.42 crore RNRL shares changed hands on the BSE followed by Ispat Industries (1.41 crore shares), IFCI (1.08 crore shares), GMR Infrastructure (99.65 lakh shares) and Reliance Petroleum (99.05 lakh shares).

Valuewise, Reliance Capital clocked a turnover of Rs255 crore followed by Reliance Energy (Rs207 crore), RNRL (Rs199 crore), GMR Infrastructure (Rs179 crore) and Reliance Industries (Rs158 crore).

European Indices at 16:15 IST on 25-01-2008

Index

Level

Change (pts)

Change (%)

FTSE 100

5936.90

61.10

1.04

CAC 40 Index

4973.07

57.78

1.18

Dax Index

6943.16

122.09

1.79

Asian Indices at close on 25-01-2008

Index

Level

Change (pts)

Change (%)

Nikkei

13629.16

536.38

4.10

Hang Seng

25122.37

1583.10

6.73

Kospi Composite

1692.41

29.41

1.77

Straits Times

3159.48

109.39

3.59

Jakarta Composite

2620.49

103.79

4.12

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