Mar 3, 2012

Market Update 3/3/2012

The markets consolidated this past week in the range of 5320- 5450 on the Nifty. 5320 is an important support for the Nifty. Should the markets break-down below this point then we could see a period of weakness ahead.

The European debt crisis seems to have stabilized for now. The 130 billion euro bail-out package for Greece has been well received by the markets. Also the European Long Term Refinancing Operations (LTRO) has ensured that the European Central Bank (ECB) is flush with funds to over-ride any immediate threats arising from the debt crisis. The euro has risen as a result of increased investor confidence in the currency.

Domestically the stock sale of ONGC nearly flopped and was saved only because of last minute buying by public entities SBI and LIC. This indicates that investors are still wary of investing in the markets. The Government’s disinvestment plans will have to be re-worked and this could have a big impact on the fiscal deficit.

The election results of UP need to be closely watched. A strong showing by the UPA and its allies should augur well for the markets. The results are coming out on the 8th of March.

It is also budget season. The 3rd week of March is action packed. 14 March is the railway budget. We expect that rail fares will increase and that a slew of new rail infra projects will be announced. Companies in that space should do well in the run-up to the rail- budget. Thursday, 15th of March is RBI policy review day. And 16th of March is the union budget.

Inflation seems to have stabilized, though most analysts argue that this is because of the high base effect of last year. GDP data that was announced last week was also weak. The government has asked the RBI to reduce rates. However, the high prices of crude could influence the RBI and it might resist from bringing down rates too quickly. I expect another CRR rate cut and nothing more from the RBI.

The Rupee seems to have stabilized at 49 to the dollar. The dollar has weakened on account of increased investor confidence in the euro. The dollar- rupee rate is expected to remain around these levels.

Gold was very weak last week on account of a stronger euro. We could see further weakness.

I’ll be happy to hear your comments/ suggestions.

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