SENSEX ends day slightly higher

• The benchmark BSE Sensex rose 0.07 percent, or 13.09 points, to end at 19,255.09.The broader Nifty rose 0.14 percent, or 8.05 points, to end at 5,855.75.
• The BSE Sensex edged slightly higher on Monday as Tata Motors extended its recent rally on hopes of improved sales at its key unit Jaguar Land Rover, while short-covering helped technology shares such as Infosys advance.
• Volumes were thin, with global shares steady, as the holiday mood set in across markets despite tensions over the U.S. budget dispute.
• The thin volumes could exacerbate the volatiliy expected later this week ahead of the monthly derivatives expiry on Thursday.
• “Indian shares are adopting a wait-and-watch policy to await the outcome of the U.S. fiscal cliff and not moving in a tangible manner,” said Kaushik Dani, fund manager at Peerless Mutual Fund.On the domestic front, third-quarter earnings will also start and developments on earnings will determine the direction of the market, Dani added.
• Tata Motors Ltd ended 2.52 percent higher, extending a rally on hopes of improved sales at its key unit Jaguar Land Rover and as the company planned investment into passenger vehicles.
• The auto-maker’s shares have gained 9.5 percent so far this month, as of Friday’s close.
• Technology shares gained on short-covering as the recent underperformance was seen as overdone. Infosys Ltd rose 1.1 percent after falling 5.75 percent this month, as of Friday’s close.
• Tata Consultancy Services Ltd was up 0.6 percent.
• Analysts expect the technology sector to see some pick-up in outsourcing activity as the sector has been beaten down in 2012 due to the eurozone crisis and unfavorable election rhetoric in the U.S.
• Glenmark Pharmaceuticals gained 4.23 percent after a unit entered into a development pact with Forest Laboratories, which will make an upfront payment of $6 million to the Indian drugmaker.
• Loss-making Kingfisher Airline rose 5 percent, its maximum daily limit, after TV news channels reported it had submitted a revival plan to the civil aviation authorities, without citing sources.
• Oil & Natural Gas Corp shares fell 1.9 percent after the stock went ex-dividend on Monday. The explorer had offered a dividend of 5 rupees for 2012/13.
• Shares in Tata Steel fell 0.5 percent after the company reported a clash between contract workers and security guards at its main Jamshedpur plant in eastern India on Monday.
• Maruti Suzuki Ltd shares ended 1.73 percent lower on concerns about its domestic passenger car sales outlook.
• Angel Broking says Maruti Suzuki expects “muted” volume growth of around 6 percent in fiscal 2013 and 6-7 percent in fiscal 2014, according to a note on Monday, citing the automaker’s management.

How integrated countries are with the rest of the world?

• How  integrated countries are with the rest of the world varies more than you might expect? And the world is less integrated in 2012 than it was back in 2007. These are the conclusions of the latest DHL Global Connectedness Index, which found that the Netherlands is the most globalised of 140 countries, just ahead of Singapore; landlocked Burundi is the least. (North Korea was not ranked.)
• The index measures both the depth of a country’s connectedness (ie, how much of its economy is internationalised) and its breadth (how many countries it connects with). The economic crisis of 2008 made connections both shallower and narrower. The depth measure has rebounded since 2009, and is now 10% higher than it was in 2005—though it remains below what it was in 2007. But the breadth of connectedness has continued to slip, and is now 4% lower than in 2005.
• At first, as the economic crisis took hold, both trade and capital flows became less globalised, but since 2009 trade has bounced back whereas capital flows have continued to become less globalised, says DHL. This seems to reflect a fall in the number of places into which companies from any given country are willing to put their foreign direct investment.
• Even the Netherlands could benefit a lot by becoming more globalised, says Pankaj Ghemawat of IESE Business School, who oversees the index. Mr Ghemawat conducts surveys of popular views of globalisation. He finds that people consistently assume that the world is much more interconnected than it really is. This is why they underestimate the gains that could be made by further globalisation, he argues. Intriguingly, no group overestimates global connectedness more than company bosses. Perhaps this is why their efforts to expand abroad so often stumble.

BSE Sensex gains 120 points

• The BSE Sensex rose on Tuesday led by lenders such as State Bank of India, as hopes parliament will pass the banking amendment bill outweighed disappointment after the Reserve Bank of India kept interest rates and the cash reserve ratio unchanged.
• India’s central bank kept rates on hold on Tuesday, ignoring government pressure to reduce borrowing costs, but said it was shifting focus towards boosting a flagging economy, raisingthe odds of a rate cut as early as January.
• Analysts said domestic markets benefitted from improved demand for global risk on the back of signs of a U.S. budget compromise intended to resolve the so-called “fiscal cliff.”
• The benchmark BSE index rose today by 0.63 percent, or 120.33 points, to end at 19,364.75, marking its biggest single day percentage gain since Nov. 30. The broader NSE index rose today by 0.66 percent, or 38.90 points, to end at 5,896.80.
• Shares in banks such as State Bank of India ended 1.2 percent higher after falling as much as 2.8 percent. ICICI Bank rose 0.4 percent, while Bank of India gained 2.9 percent.
• Gains were fuelled by expectations the banking amendment bill will pass parliament after the government dropped a controversial clause that would have allowed banks to trade in commodity futures.
• India’s parliament is expected to amend banking laws that include raising the limit on shareholders’ voting rights in public and private sector banks, a step seen as largely positive towards the government’s reform drive.
• India’s Bharat Heavy Electricals Ltd gained 4.2 percent after CLSA added the stock to its Asia ex-Japan long only portfolio with a 3 percent weighting.
• Tata Consultancy Services rose 0.4 percent after its management reiterated its positive forecast for fiscal years 2013 and 2014 in a meeting with analysts on Monday.
• Shares in Sun Pharmaceutical Industries, India’s most valued drugmaker, gained 2.2 percent after its unit agreed to buy the generic drugs business of U.S.-based URL Pharma from Japan’s Takeda Pharmaceutical Co.
• However, among stocks that fell, Jaiprakash Power Ventures Ltd ended 6.8 percent lower after its promoters sold 49.7 million shares, or about 2 percent of its equity, at an average price of 39 rupees a share.
• Shares in Financial Technologies (India) Ltd fell 0.5 percent and Multi Commodity Exchange of India Ltd (MCX) ended 0.7 percent lower after the government said it would drop a controversial clause from a banking bill pending in parliament that would have allowed banks to trade in commodity futures.
• Traders said if the bill was approved in its original form it would have led to additional trading volumes in the commodity market and would have been positive for both companies. 

India’s fight against high prices

• The remark appeared innocuous, reasonable even, but for a country with few respected public institutions, it was unnerving. If India’s bond market were not so tightly controlled it might have created a minor scare. At a public event on December 2nd the governor of the Reserve Bank of India (RBI), Duvvuri Subbarao, was asked by his predecessor if it would relax its medium-term goal of 4-5% inflation. This is not a strict target of the kind some Western central banks try to stick to. But it is an ambition that the RBI has long held.
• Mr Subbarao replied: “I am not saying that we will definitely change the number, but we will certainly revisit our strategy.” Only last month the RBI published a paper saying the opposite. In the battle against inflation, abandoning the goal would be “nothing short of admitting defeat,” says Rajeev Malik of CLSA, a broker.
• The cock-up theory is that Mr Subbarao mis-spoke. But the RBI has not backed away from his remarks, which come at a difficult time for India. Since 2008 inflation has remained high, despite the RBI’s repeated tightening. GDP growth slowed to an annual 5.3% in September; investment by firms is low; and the fear of bad debts stalks some industrialists and their banks, which want relief.
• Commodity-price shocks help explain stubbornly high inflation. But the government is also to blame, thanks to its lack of reforms and high borrowing. The new finance minister announced a mini-package of economic measures in September with much fanfare, and has made it clear he now wants the RBI to cut interest rates. With a general election due by mid-2014 politicians are desperate for faster growth.
• The idea that the RBI might yield to such political pressure is not so far-fetched. It is not statutorily independent. Its bigwigs are often hired from the government and return to it after their stints: the prime minister used to be governor. The one outsider among the RBI’s top brass, Subir Gokarn, who has lots of fans among investors but has been critical of the government, is yet to have his tenure as deputy governor renewed. It expires at the end of the year. The RBI also has contradictory mandates, like many central banks nowadays. As well as its monetary duties, it also acts as the government’s banker and guards financial stability. In the name of these latter two goals it forces banks to buy government bonds and purchases some itself, depressing yields. That arguably makes it complicit in the public-sector borrowing binge that fuels inflation.
• Critics argue that the RBI has already been cutting by stealth, using liquidity-management tools and verbal guidance to make sure market interest rates have dropped even as the policy rate has stayed unchanged since March. Ditching the inflation target would, by this account, just be an admission that it never had the stomach to enforce it in the first place.
• The RBI would put things differently. Although its empirical work has previously suggested that 5.5% is the maximum healthy level of inflation, lately something has changed. Despite a sharp economic slowdown prices have kept on rising. A big chunk of demand seems to be insensitive to what the RBI does. The government borrows regardless. Rural consumers, who are doing well and are often outside the formal financial system, are shifting to richer diets, pushing up food prices.
• That leaves the RBI with a lousy option, to temper demand by disproportionately hitting the narrow range of activity that is sensitive to interest rates, in particular private-sector investment. But that means fewer new factories and roads, which damages India’s long-term potential. Clearly, it would be good if the government got its act together. Assuming it does not, though, the lesser of two evils might be higher prices and a perkier private sector.
• Yet there is no guarantee investment would revive: the main problems are graft and red tape. Real interest rates are already looser than during the boom of 2003-08. Higher inflation might prompt a wage spiral. The public’s inflation expectations are uncomfortably high, at 13%, one reason why they buy so much imported gold, hurting the balance of payments. And without the RBI providing discipline of sorts, politicians might behave even more recklessly. India has many public institutions run on the basis of deferring difficult decisions for short-term gains. The RBI should think hard before joining them.