Jul 7, 2014

Market Update 4/7/2014

The major indices gained almost 3% in this past week as a result of pre-budget exuberance. The indices have continued to create new highs. The major event of the week is the Union budget due on July 10th. A lot of expectations have been built in to this rally. Which direction the market moves post-budget is a speculators call.

25,550 seems to be an intermediate support for the Sensex (we touched 26k today in morning trade). The index seems to be touching the upper edges of the Bollinger bands and therefore some consolidation should be expected in the short term.

Retail interest has picked up in the equity markets (as per ground reports). This means that the current long term bull rally has legs and should continue. Domestic Institutional Investors (DIIs) have also started turning net buyers in the markets and new laws and regulations are expected to help pique investor interest in equities.

Fundamentally the markets are trading just above their long term average valuations. While the trend for the short-medium term is clearly bullish, we would advise long term investors to keep this in mind while investing in the markets. Maintain asset allocation and maybe even slightly under-allocate towards equities at this point of time.

CPI inflation has come down marginally and yields on the benchmark 10 year G-Sec have also come down to close to 8.66%. However, rainfall has been deficient this monsoon and the RBI will be keeping an eye for any signs of movement especially in food prices. Crude oil has remained stable at around $ 111 for a barrel as geo-political tensions in Iraq seem to have been factored in to the current prices. This gives the RBI some room for maneuvering. However, it is expected to keep rates where they are, playing only with the CRR and SLR till conditions on the ground actually improve.

The Rupee has been gaining strength again on account of lower crude prices and strong FII inflows. It is expected to trade in between the 59- 60.5 range in the short to medium term.

Gold has move up slightly to $1317 odd on account of geo-political tensions and expectations of more monetary easing from the European Central Bank (ECB). We expect it to remain at these levels for the short to medium term.

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