India Market Weekahead – Volatile market within a narrow range
(The views expressed in this column are the author’s own and do not represent those of Reuters)
A sharper-than-expected cut of 50 basis points in the repo rate boosted the benchmark indices early during the week. However, as expected, the Nifty could not gain higher than 5350 as apprehensions about the limited scope of further rate cuts suppressed sentiment.
The Reserve Bank of India (RBI) sounded cautious as recent growth trends indicate the economy is operating below its post-crisis levels. We anticipate a very limited scope for further reduction in policy rates going ahead as persistent liquidity deficit would make rate cuts difficult. Also the upside risk to inflation remains and further slippage on the fiscal front can aggravate inflationary pressure.
Globally, the euro zone markets also witnessed positive action following a successful bond auction by Spain and France. Appetite for these bonds during such distress times renewed some hope of revival in that region.
Reliance Industries came out with its Q4FY12 numbers after market hours on Friday. Its net profit of 42.4 billion rupees just fell short of the street estimate of 43 billion rupees, down 21 pct year-on-year. Lower production from its KGD6 offshore fields and weak refining margins dented profits. Sales, however, grew 16 pct to 878 billion rupees. Due to falling KGD6 production and weak cyclical margins, its near-term earnings are expected to remain subdued. The stock should remain sideways for some more time due to a lack of positive triggers, with the downside protected due to the ongoing buyback plan. Among cement heavyweights, Ambuja and ACC results also disappointed markets.
For the coming week, the markets are expected to remain volatile on account of derivative expiry. Some of the major corporate results — beginning with TCS on Monday — will remain crucial. Others include Sesa Goa, Wipro, Sterlite Industries, ICICI Bank, Axis Bank, Jindal Steel & Power, Siemens and Maruti Suzuki.
The rupee continued to be weak quoting above 52 rupees against the dollar. Though the RBI intervention in the currency market was expected to stem the fall, there doesn’t seem to be any such move. The rupee would continue to remain weak within a range. Oil prices gave some respite by correcting to $118.Closer home, with no action on increasing the retail prices of petro products, the subsidy burden continues to balloon.
The last two weeks saw an occurrence of flash crashes, though the markets recovered subsequently, due to a “punching error”, triggering off algos which feed on itself. It’s ironical such incidents happened in the month when SEBI issued guidelines on algorithmic trading.
Globally, the G20 doubled the International Monetary Fund (IMF) resources to $430 billion to help ease Europe’s debt crisis. Monetary policy will also be a key short-term focus with the Federal Reserve and Bank of Japan both holding policy meetings on Wednesday and Friday respectively with speculation over additional policy action.
The Nifty will be volatile within the range of 5200 – 5350 in a derivative expiry week. The results of Reliance Industries may weigh on the markets which could open subdued on Monday. We continue to expect 5000 – 5050 levels in the next few weeks.