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Straight from the Specialists

India Market Weekahead: Trading subdued but markets back on track

By Ambareesh Baliga
November 11, 2012

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

Last week was a volatile one with the stock market poised for a surge but the Nifty eventually closed in the red with a loss of 0.20 percent at 5686.

Though we have outperformed world markets, the period of indecisiveness is getting stretched. Vijay Mallya finally announced a deal with Diageo to sell a stake in United Spirits, his crown jewel — a much speculated transaction for the last few months.

Euro zone woes were back on the radar with reports of a delay in Greece’s next bailout tranche, and the continuing problems in Spain. ECB President Mario Draghi’s comment on Germany being impacted by the euro zone crisis added to the negativity.

The U.S. presidential election was the central theme which shifted to the “fiscal cliff” after Obama’s win. The United States could be staring at a 0.5 percent drop in GDP and increased unemployment but the moot question is whether this, along with the euro zone crisis, would affect India as much as it would affect others?

India, which is still predominantly an internal consumption economy compared to its export-driven peers, will draw more attention especially as recent economic data suggests a bottoming out.

Corporate results last week were a mixed bag. Bharti Airtel’s bottom line was lower but revenues and margins were better than expected. A one-time spectrum fee and the auction slated next week would give telecom companies a reason to increase tariffs.

Other results such as the State Bank of India, Tata Steel, SAIL and Hindalco disappointed as expected but pharma majors such as Ranbaxy and Sun Pharma performed better than street expectations. ONGC was bogged down by the subsidy element.

Recent results confirmed a divergent trend between private and public sector banks in terms of asset quality. Rising non-performing assets (NPAs) and restructured assets will continue to trouble public sector banks for the next few quarters whereas private sector ones have managed both their asset quality and margins.

The setting up of the National Investment Board, which would mean single window clearance for large infrastructure projects, is expected in the next 2-3 weeks. This would be among the first proposals of recent policy reforms to be implemented. In addition to providing a boost to the infrastructure sector, it would send out the right signals to overseas investors that the elephant may finally start walking.

The coming week is a truncated one with a special muhurat session on Diwali, the festival of lights. The important data points would be inflation and the index of industrial production (IIP) on Monday.

Trading is expected to be subdued but the market seems to have support around 5640. Any weakness would be an opportunity to buy as I don’t see any reason for markets to collapse. We are still firmly in an upward trajectory and renewed FII flows will put the markets back on track.

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