India Markets Weekahead – A breakout expected before the year ends

By Ambareesh Baliga
December 16, 2012

 

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

Markets struggled to hold beyond Nifty levels of 5900 and closed the week 0.47 percent down, breaking a three-week streak of gains. Uncertainty over the banking regulations bill seems to have overshadowed better-than-expected wholesale price index-based inflation data in November. Industrial production soared by 8.2 percent, surprising analysts and sending signals that green shoots of economic recovery are visible.

After the drubbing in parliament over the FDI-in-retail bill, the main opposition Bharatiya Janata Party seems determined to ensure that the banking bill does not go through without amendments. The fate of other financial bills also hangs in the balance. An immediate trigger for the markets would be a solution to the banking bill impasse.

Policy measures taken by the Congress-led coalition government on the sidelines of the parliament session confirm that such steps will gain momentum once the winter session ends next week. The long awaited National Investment Board has been cleared by the cabinet under the name of the “Cabinet Committee on Investments” and should give a fillip to the infrastructure sector. It is expected that the roadmap for the goods and services tax would also be put on fast track, proving that the government means business.

Prime Minister Manmohan Singh has reaffirmed his government’s commitment to alter the policy environment to accelerate economic growth but Finance Minister P. Chidambaram hinted at a “bitter medicine” to restore the health of the economy. One wonders whether this is a hint to expect tough measures in the next budget.

The pricing of state-run miner NMDC helped in reviving “genuine” interest in PSU offerings and resulted in the issue being oversubscribed. Among IPOs, Bharti Infratel barely managed to scrape through the mega offering with generous help from qualified institutional buyers. On the other hand, the Credit Analysis and Research Limited IPO got an overwhelming response, getting oversubscribed nearly 41 times while PC Jeweller got subscribed 7 times — confirming that liquidity is available for fairly priced offerings.

Corporate advance tax data due on Dec. 15 showed encouraging signs with corporate leaders like Reliance Industries, TCS, Bajaj Auto, banks and financial institutions paying higher taxes. This should allay the concerns of the finance ministry. The Reserve Bank of India mid-quarter review is due on Dec. 18 and is expected to be a tame affair with no change in key rates. The statement from the central bank governor would be the key to the action expected in January when I expect a repo rate cut of 50 bps.

FIIs continue to pump in funds with last week netting close to a billion dollars. As mentioned earlier, the next phase of the rally would be driven by local investors sitting on the sidelines. This along with fresh allocations by FIIs would be the technical factor for the markets to rally.

The market makes a sharp move and then remains range-bound before breaking out. We have seen this phenomenon in the range of 5200-5400, again in 550-5750 and now in the region of 5800-5950. Towards the end of the specific range, it tends to tire out market players with a false sense of a breakdown, before finally breaking out and getting into a new range.

We are currently in this period of “tiring out” and hopefully the breakout should be seen by the end of the month. This could coincide with the ending of the winter session of parliament, Gujarat election results and a possible consensus on the fiscal cliff. Remain in the markets as long as we don’t break 5800 levels of the Nifty decisively.

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