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Straight from the Specialists

India Markets Weekahead – Still time to tank up for a pre-budget rally

By Ambareesh Baliga
January 20, 2013

(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)

The Nifty has crossed 6,000 levels while the Sensex breached the psychological barrier of 20,000 to touch a two-year high — triggered by an overdrive of government action, encouraging macro numbers, corporate results and no bad news internationally.

One of the biggest irritants for FIIs was removed last week with the announcement that the General Anti-Avoidance Rules (GAAR) would be applicable only from April 2016.

The much awaited diesel price hike was announced through a “partial decontrol” which enables Oil Marketing Companies (OMCs) to decide on diesel prices, which were increased by 45 paise last week. Markets were expecting an increase of three to four rupees followed by a calibrated raise every month, but this decision of shifting the onus to the OMCs seemed politically correct.

Apart from improving general sentiment due to a more effective control on subsidies, it could also ensure a smooth divestment in the biggest oil marketing company. Indian Oil has seen 30 percent appreciation in the last three weeks.

The rupee gained sharply against the dollar, closing the week up 1.97 percent at 53.73 rupees. The Dow also touched a five-year high while China’s economy seems to be on the path of recovery, growing 7.9 percent in the fourth quarter.

The euro zone was eerily quiet while the U.S. debt ceiling issue is still a few weeks away. Though the India-Pakistan border skirmishes have been taken in their stride, markets will be closely watching the Japan-China island dispute which could destabilise the region.

Wholesale price inflation data at 7.18 percent was much better than expected, boosting hopes of a rate cut by the Reserve Bank of India on Jan. 29.

But markets were spooked mid-week by the RBI governor’s statement that inflation was “still quite high”. I am still hopeful of policy action as the government has been actively pursuing measures to put the economy back on track, an important parameter for the RBI governor.

The earnings season continues and most market heavyweights brought cheer with quarterly results beating consensus estimates by a large margin. TCS and HCL Technologies impressed but Wipro fell victim to expectations. Though the numbers topped forecasts, Wipro’s near-term outlook seemed foggy, resulting in a 7.74 percent fall.

Most other results such as Axis Bank,  ITC, Yes Bank, DCB and Indusind Bank were better than expected although two-wheeler giants Hero Moto Corp and Bajaj Auto disappointed. HDFC Bank, although it met market expectations in growth and profitability, raised concerns of rising NPAs which has been their strong point in the past. Exide also disappointed with lower profits.

Reliance Industries beat the most optimistic forecasts by announcing a 24 percent rise in net profit, supported by higher-than-expected refining margins and an uptick in petchem margins. The stock should move to a new orbit and lead markets higher.

Company results expected in the coming week include NTPC, Asian Paints, HDFC, Cairn India, HUL, Kotak Mahindra Bank, Maruti, L&T and Sesa Goa. Other than HUL which could again show signs of margin pressure, I don’t see the heavyweights  disappointing the markets.

With continued FII buying, the government actively pursuing policies that could please the markets and corporate results beating expectations, the markets could test 6,150-6,200 levels led by Reliance Industries.

I reiterate my expectations of a new high in the near future and those who have missed out, there’s still time to tank up for the pre-budget rally.

 

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