Dec 1, 2013

Market Update 1/12/2013

The markets have had a positive week with both the Sensex and the Nifty closing 2.8% and 3% higher than the last week respectively. GDP growth at 4.8% came in better than the last quarter. A few international factors were also at play with the Fed indicating that tapering would not happen any time soon and also the Chinese announcing a slew of reform measures aimed at strengthening their economy.

The positive uptrend may continue over the short-term. Fundamentally, markets (Sensex & Nifty) are close to average valuations. As a long term investor this might not be the time to jump all in to equity.

While most analysts are predicting new all-time highs for the Nifty and the Sensex in the short to
medium term, we expect pockets of correction with the Fed tapering and also the general elections. The correction might not be very steep because at the moment it looks like international factors are going to favor equities. But, it would be prudent to wait out the current rally, or buy in at dips, rather than chase the tail.

The debt markets are not expected to move too much in the near term. GDP growth might have come in as a slight negative to the bond markets as the economy has shown signs of improvement in spite of high interest rates. The 10 year G-Sec closed last week at 8.7. It can be expected to trade in the narrow range of 8.5-8.9. The play would be short term or liquid as the possibilities of increasing rates continues because of persistent inflation.

The Rupee has found support at 63.5 and is facing resistance at 62. This is a very narrow band and technically we should be expecting a break-out on either side. However, looking at local and global factors we expect the Rupee to be range bound with a slight delta over the ranges mentioned.

Brent crude continues to inch towards $110/ barrel. This is not good news for India. Diesel prices have already been increased throughout the country. We can expect some inflationary effects from the same. Technically $110 is a resistance for Brent. It is expected to trade in between $103-$110 over the near to short term. Good news from US and China pushed crude higher over the past week. However, there doesn't seem to be enough demand in the world economy to push crude prices even higher. This could provide some relief to emerging markets such as India.

Gold is now at $1252/oz. It is expected to trend lower as investors the world-over continue to prefer other asset classes. In India gold is trading at around Rs 28,200 for 10 grams. Technical weakness can be expected in the metal and those looking to buy in to the metal should do so in dips and be prepared to average out prices.

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