Sep 21, 2013

Market Update- 21/9/2013

The markets have had a positive week ending 2.8% higher than the previous week The Rupee looks stronger now with the "Syria problem" having been solved and the Fed keeping off its "tapering" for the moment. It seems to be facing resistance @ 62.5.

Brent crude is at $109 odd. This is still high and could still play a major role in the Current Account Deficit (CAD). Keeping these in mind, and with the possibilities of "tapering" in the near future, the RBI had raised rates in it's policy decision yesterday.

6200 on the Nifty seems to be a technical resistance to the markets. This translates to about 20,700 in the Sensex. This has been a long term resistance and it will be interesting to see how the markets react if these levels are breached. If they are breached in the short term- my sense is that investors will book profits as the general elections(=> volatility) loom in the background.

The effects of the sharp Rupee depreciation are expected to continue in the near -to- short term. Petrol/Diesel prices have already been rising. This will have its ripple effects on the economy and inflation can be expected to rise. A good monsoon should keep inflation in check to some extent but the Rupee depreciation and crude oil will be the bigger stories to follow in the days to come.

For long-term players in Equity, the lead-up to the general elections should provide windows of opportunity to buy assets at good prices. Cash should be kept in hand to make use of these opportunities. The recent rally should be used as an opportunity to book some profits and park in cash.

We've had an interesting past few months in the bond markets and RBI's policy announcements last evening have made it even more interesting. Interest rates will rise (for both deposits and lending) and investors are likely to see negative returns in their debt portfolios over the next few days. The long end looks too volatile to predict and it would be better to exit long-term strategies and move in to the shorter end. Alternatively instruments which can lock in the interest rates should be preferred at this point of time.

The Rupee has already been covered above. The dollar will weaken in the near term as speculators wind down their "tapering" positions. The rise in interest rates should also make the Rupee more attractive. However, both of these could be off-set by crude and gold prices. As mentioned above 62.5 seems to be a support and, looking at the macro picture, 65 could be a resistance in the near term.

Gold should pick up in the next few weeks. Investors in the asset class should look at booking profits/ exiting from the same as the macro picture in the long-term doesn't look too exciting for gold.


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