India Market Weekahead: Buy on dips with no roadblocks till budget

November 4, 2012

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

There wasn’t much point-to-point movement on the Nifty but it was not a listless week by any standard.

The Reserve Bank of India (RBI) reduced the cash reserve ratio by 25 bps and left the repo rate unchanged at its policy review, disappointing markets which had been eyeing 5600 levels on Tuesday.

Another bout of weakness followed the next day before the market staged a recovery.

Positive global data points and an aggressive stand by the central government helped markets close at 5697, up 0.58 percent for the week.

The cabinet reshuffle was a pointer that the government is not being bogged down by graft allegations.

Finance Minister P. Chidambaram was irked by the RBI governor’s decision of holding rates, saying the government would walk alone if need be to face the challenge of growth. This also means we could have a second round of policy announcements before the winter session of parliament.

October vehicle sales, led by Maruti Suzuki, showed 85 percent growth, albeit on a low base. Most of the others performed better than expected and ignited a fresh rally in the auto stocks. Manufacturing PMI nudged up to 52.9, confirming that the worst is behind us.

Titan posted a good set of numbers which took the stock to a lifetime high. Wipro results were also a tad better than the market expected.

Dr. Reddy’s stunned the street with 32 percent growth in the bottom line with most brokerage houses upgrading it to a buy. FII buying activity is reduced but a renewed surge of liquidity is expected after the U.S. elections.

Superstorm Sandy helped bring oil prices down as demand from refineries waned while the opening up of the Gulf of Mexico for foreign tankers and the release of emergency supplies put on a cap on speculative demand.

Better-than-expected U.S. jobs data put pressure on gold prices which crashed below the psychological mark of $1700 to close at $1678.

The most important news events in the coming week would be the political changes in the world’s two biggest economies. The U.S. elections on November 6 would be closely watched with Asian markets wary of Romney becoming president. Either way, the focus will shift to the fiscal cliff debate. China is also bracing for a change in leadership.

The key results next week are Bharti Airtel, Tata Motors, Ranbaxy, ONGC, Tata Steel, Coal India and State Bank of India — but most of them are not expected to cheer the markets.

I continue to remain bullish on the Indian equity markets with commodity prices, including oil, showing signs of weakness. Corporate India has gone through trimming and cleansing in the last two years and the markets have separated the wheat from the chaff.

The only joker in the pack is government formation after the 2014 elections but I believe state elections in the next few months could alter the scenario. If clarity emerges on the political front, it would mark the beginning of another multi-year bull run. In the short term, I do not see roadblocks till the budget and suggest buying on dips like we saw last week.

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