India Markets Weekahead: New highs will be more robust

January 27, 2013

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

By Ambareesh Baliga

With consensus building for the Nifty to cross 6,100 and move into a new range, buoyed by the better-than-expected results for Reliance Industries, we saw the markets correcting with mid-caps and small-caps cracking. The markets recovered on Friday to close the week with marginal gains at 6,074.

The pattern in July, August and November was similar, with the markets defying consensus, taking us by surprise on the downside and breaking out of the range on the top.

Finance Minister P. Chidambaram continued to assure the markets with positive comments on personal taxation, a fiscal deficit he is still confident of maintaining, and the introduction of long-awaited insurance and pension bills in the budget session. He was on a four-nation tour to woo foreign investors as FIIs poured in $350 million last week.

Company results during the week were mixed with Hindustan Unilever disappointing with lower volume growth of 5 percent and an over 100 percent increase in royalty. The product price increase did not lead to a commensurate effect in revenues, indicating that demand has become elastic at the given price point.

Maruti beat street estimates but one needs to see whether it can keep pace with lower sales guidance for the year ahead. Tata Motors too had a bad week with JLR guidance being revised downwards while Larsen & Toubro surprised the street with better-than-expected order flows.

While Suzlon broke above 21 rupees after a long time with the approval of the CDR package, HDIL shed 40 percent as investors were not convinced with the explanation given for a promoter stake sale in the open market. Bharti Airtel had a spirited rally after it talked of reducing discounts and increasing tariffs. As mentioned earlier, this was a trigger waiting to happen as cellular tariffs in India are among the lowest and increasing rates was inevitable.

Oil India and NTPC will set the trend for the next set of FPOs and going by recent experience, the pricing would be realistic. Oil marketing companies lost between 4-8 percent after an over 30 percent rally recently. The game changer was the partial deregulation of diesel prices, which would bring in long-term investors into this sector.

There are expectations of a rate cut of 25 bps (or even a surprise 50 bps) by the RBI governor on Jan. 29. This could be the trigger for markets to break out. But it’s a busy week with derivatives expiry on Thursday and with cement, auto sales and PMI data coming in on Friday, markets could be volatile. Quarterly results from Sterlite, ICICI Bank, Grasim, Punjab National Bank, IDFC, Bharti Airtel and BHEL would be the ones to watch.

On the global front, we have the FOMC meeting on interest rates on Jan. 29.

Currently, markets are light at 6000+ compared to the bubble which had built up on earlier occasions in 2007 and 2010 at similar levels. We are yet to see a huge participation from domestic retail and HNI participants which could be a “blessing in disguise”. With markets consolidating at each level before moving on, it gives me the confidence that they’ll touch new highs, slower than expected but surely more robust.

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