FII friends are back; hope it’s not just a rave party
The markets have extended previous week’s gains with Nifty surpassing an important level of 5500 and has accelerated further, mainly led by strong FII inflows and short covering.
Global indices rallied after the Greece parliament approved harsh austerity measures, which could pave the way for the debt-laden European nation secure emergency international financial aid and avoid a debt default.
Overall, June was quite volatile where one witnessed both the extreme ends of the range getting tested and finally closing at the top-end of the band. Strong rollovers were seen in Nifty from June to July series as almost 57 pct positions got rolled in next month as compared to 52 pct positions last month.
Marketwise rollovers were in line with expectations and almost 84 pct positions got rolled in July as compared to 83 pct last month. Strong rollovers were seen in banking, cement, FMCG, pharma and power sector as compared to last month.
In stock-specific activities, retail sector stocks witnessed buying on reports that the government is expected to approve a proposal to open up the multi-brand retail sector in India, allowing global chains to enter by March 2012. Pantaloon Retail could be in focus as it is FDI ready after its recent restructuring which segregated its financial service and insurance entity.
The latest RBI data showed credit offtake from banks grew by nearly 21 pct to over 41 trillion rupees during the one-year period ended June 17. Bank stocks extended gains as a result. Tyre makers gained after natural rubber prices tumbled. FMCG stocks continued an upsurge on expectations that a strong monsoon will boost demand from rural areas and also reduce input prices. Top picks of the sectors, ITC and HUL, touched 52-week highs.
HDFC results on July 8 will officially kick off Q1 earnings of the FY12 season, followed by heavyweight and much watched Infosys on July 12. Meanwhile, inflation and industrial production data, having a greater role in RBI decisions on rates, would be out in the next fortnight. Food inflation is already showing signs of softening and the next couple of weeks could confirm that.
ONGC reportedly has filed a draft prospectus for a follow-on public offer (FPO). The offer is expected to hit the market in July and would be watched with curiosity. Sentiments were propped up due to the conditional clearance of the Cairn-Vedanta deal by the Cabinet which is tilted in favour of ONGC. The government is also expected to clarify its subsidy-sharing policy before the share sale. It makes sense to wait for the issue as cues from past issues from the PSU space suggest pricing is likely to be at a discount and FPO scrips underperform.
In the coming week, it is prudent to wait and watch markets as we are hovering near crucial resistance levels and risk reward is drifting towards the short side. Corporate results amid margin pressure emanating out of interest rates and higher raw material prices along with monsoon and oil price correction would be interesting composition to watch. Foremost, we need to see whether follow-through buying for the long lost FII friends at these crucial levels of indices pushes the market over the hump.