India Markets Weekahead: Beware the Ides of March

March 10, 2013

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

Markets ended budget week below support levels of 5800/5840 and just when the six-month rally seemed over for good, it made a spirited V-shaped recovery to close at 5946 on Friday, with gains of 3.95 percent. The Street is divided with some expecting this to be the beginning of a new rally with the market scaling highs that it missed in February; others see it as a strong pullback which will fizzle out soon.

The government seems to be responding faster to allay investor fears. It was quick to respond to FII worries over proposed changes in tax residency certificates. Finance Minister P. Chidambaram has been assuring investors of continued policy measures, including the Direct Taxes Code (DTC) bill being introduced in the current parliament session.

The mood also seems to be changing among rating agencies. Moody’s suggested that the worst may be over for India and revised their growth guidance to 6.2 percent for 2014.

The debate on the Street will slowly shift to the elections with speculation over prime ministerial candidates in the 2014 polls. Policy announcements over the next few months would be eagerly awaited but one wonders whether they would continue after the elections.

With the U.S. jobless rate at its lowest since 2008, the Dow closed the week at a record high. Germany’s DAX also briefly crossed the 8000 barrier for the first time since January 2008 with a gush of liquidity in the European system.

In India, IIP data for January would be released on Tuesday and we hope to see a turnaround after two months of disappointment. But a slower-than-expected result may not trigger negative sentiment as it could lead to a favourable announcement in the monetary policy review.

Inflation figures for February would be announced on Thursday and we expect it to be below 7 percent like in January. The mid-quarter monetary policy review on March 19 could give a thumbs up to Budget 2013 with a 25 bps cut in repo rates. Advance tax figures for March should give an indication on the quarterly profits of India Inc.

Mid-caps have found support at lower levels after the carnage of the past few weeks. Again, although corporate governance is the major bane for this sector, all of them don’t fall in the same basket. This is an opportunity for us to separate the wheat from the chaff as the market had painted them with the same brush. But remember, the stocks which have fallen the most need not be the best buy. That is a mistake most investors make while looking for the cheapest picks.

The market movement last week confirms the pattern seen in July, August and November of last year, which I had mentioned in my Jan. 27 column. After defying consensus at both ends of the band, we have to see whether the market is able to break out decisively above 6000, which will again confirm that the recent crack was an aberration in the longer-term bull market. Alternatively, if it fails to sustain above 6000, we could see the markets drifting towards recent lows. Either the bull or the bear will fall prey to the Ides of March.

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