China package revives commodities, equities world over

China’s $586 bn economic stimulus program aiming to bolster domestic demand and help avert a global recession has resulted in strong rebound in equities and commodity prices world over.

Metals and agriculture commodities have gone up today following yesterday’s China’s announcement.  

Indian stocks also went up sharply today following jump in metals, power, capital goods and oil and gas indices. Benchmark index Sensex rose 5.74% or 572 points to 10,536. Elsewhere stocks rose in Europe and Asia and US index futures also climbed. China's CSI 300 Index jumped 7.4 percent, and Japan's Nikkei 225 Stock Average surged 5.8 %.

Apart from infrastructure and other investments, China is also making plans for new spending in areas such as low-cost housing, road and rail infrastructure, agricultural subsidies, health care and social welfare over the next two years.

“All these measures will lead to consumption and demand growth. If demand goes up in countries like China, it will stimulate world economies as well,” said Mahesh Vyas, MD and CEO of CMIE an independent economic think-tank and research organisation.

Base metals prices went up today by 3-4% while rubber, edible oils, crude oil, precious metals prices were up.

Chinese package is different from packages announced by various central banks including US Fed. US has announced package of $700 bn. All those packages were bail out packages, while China will spend for boosting infrastructure and consumption that will lead to increase in demand everywhere.

“Equity market in India as well as world over went up on China package and interest rate cuts by various central banks,” said Sudeep Bandyopadhyay, CEO of Reliance Money.

India is also acting in unified way to address the current crisis but there is suggestion to take China type measures that can result in increase in demand. “Indian government should reduce excise duties across board so that demand can go up,” said Pradeep Shah, adviser IndAsia Fund Advisers.
 
Today, domestic institutions were big buyers. They purchased shares worth Rs 377 cr, while FIIs were net buyers though amount was miniscule Rs 92 cr. China package, interest rate cuts across globe have changed the short-term outlook leading to short covering also.  Metals, infrastructure and power companies were major gainers on BSE today, while market cap was up Rs 1.56 cr to Rs 33.40 lakh cr.