Feb 12, 2012

Market Update 12/2/2012

The markets continued to remain strong this week and there are indications of a period of consolidation ahead for us. The market indicators have been in the 'over-bought' region for sometime now and as a natural consequence of that we expect that we could see some kind of profit-booking in the days and weeks ahead.
The Index of Industrial Production (IIP) data numbers that came in on Friday were weak and the markets reacted negatively to the same. However, the positive to take from that is the RBI now has the room to lower rates with falling industrial productivity and falling inflation. We reiterate that the investor looking to park funds in debt for the long/short term should do so now as the rates are not expected to remain this high in the foreseeable future.
The Greece bail-out package for 130 billion euros should pass through in the next week. The Greek parliament has to approve the austerity measures imposed on the nation as part of the deal. While there could be some political wrangling, the deal is largely expected to pass through. 
The Rupee also seems to be in a period of consolidation around 49 to the dollar. While the large appreciation in the Rupee came as a surprise to everyone it is expected to weaken as there is expectation that the RBI will reduce rates. Foreign Institutional Investors (FII's), who have largely been responsible for the rally we are seeing in the markets, have pumped in about $2 billion in to the Indian equity market in this calendar year. If we continue to see such large dollar in-flow in to the market then the Rupee could hold and maybe even strengthen further.
Gold has seen some up-move largely on account of the appreciation in the Rupee. As with the Rupee, we expect to see a period of consolidation in the days and weeks ahead.