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 8^th of March.

It is also budget season. The 3^rd 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, 15^th of March is RBI policy review day. And 16^th 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.

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.