India Market Weekahead: Too good to last much longer

February 12, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The market has continued its upward move for the sixth consecutive week, gaining over 15 pct in 2012 and 20 pct over its December bottom without any worthwhile correction. The excellent market rally during the past few weeks is helped by global liquidity and strong FII inflows. However, mild profit booking was seen as the Nifty approached the all important resistance zone of 5400-5450.

Economic data that came in during the week was subdued. India’s trade deficit rose to $148.7 billion during the first 10 months (April – January FY12). India’s GDP growth is expected to be 6.9 pct, according to advance estimates, which is the slowest growth since 2008-09 when India registered a growth rate of 6.7 pct.

Industrial production rose a slower-than-expected 1.8 pct in December which was sharply lower than 5.9 pct growth in November. The data was especially disappointing as other indicators like PMI and car sales were showing definite improvement. The markets did not react too adversely though we saw a bout of correction as buoyant markets look for the brighter side of any news flow.

In case of IIP data, it is being wished away as December 2010 had formed a high base and secondly, there is a feeling that the Reserve Bank of India may take a cue to reduce rates in the April policy. WPI data due on February 14 also becomes crucial in this sense.

Meanwhile, globally, Greece approved a long-awaited austerity agreement, but international backers called for ratification of the reforms before more bailout funds would be released. The ministers are scheduled to meet on Wednesday and are expected to approve rescue funds provided Greece has taken the necessary steps. This is expected
to keep markets volatile during the week.

The third quarter results season has been more or less in line with expectations so far. With the season almost over, the focus will shift to expectations from the Union Budget and elections. The record turnout in the assembly elections till date could throw up unexpected results. And the “sleepless nights” Finance Minister Pranab Mukherjee spends due to an unmanageable subsidy burden, is a pointer to the fact his manoeuvrability in this budget is limited and we may see some tough policy measures.

Some key companies declaring numbers this week are State Bank of India, Cipla, Reliance Power, IOC, Coal India, Sun Pharma, SAIL, Tata Motors, Reliance Infra, Jaiprakash Associates and others.

Coming to the Nifty, signs of resistance in the region of 5400-5450 with strong call writing at 5400/5500, profit booking is expected. The markets have run up too fast too soon to sustain without a healthy correction. Secondly, no market rally can sustain without having broader participation which is still lacking in the Indian markets.

In the near term, global markets cues, FII activities and rupee movement remain the key. I still recommend booking out to the extent of about 10 pct to 15 pct of the portfolio and await a 5 pct to 8 pct correction to top up the portfolio.

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