India Markets Weekahead: Time to size up portfolio

February 9, 2014

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

After a scare earlier in the week, the markets showed resilience at lower levels and bounced back, showing the confidence of participants. Though Nifty closed 26 points lower for the week at 6063, sentiment was much better than the previous week.

The initial weakness was due to the overbearing effect of global data points on emerging markets including India. China’s slowdown, the weakening emerging markets currencies, rate hikes and tapering fears were an ideal concoction for doomsday theories to float around. Fears ranged from a repeat of the 1997 Asian crisis to the beginning of a great depression. Notably, the rupee showed strength compared to its peers.

Euro zone data was positive with the composite PMI touching 52.1, its highest since June 2011, while falling inflation led to worries of deflation. In the United States, poor jobs data raised hopes that the Federal Reserve would go slow on the tapering of bond purchases.

New Fed chief Janet Yellen will make her first public appearance when she delivers the semi-annual monetary policy report. The market will be looking for cue on the Fed’s tapering and the roadmap ahead.

Closer home, the manufacturing and services PMI showed an uptick, although services remained in the contraction zone. Ironically, the services sector is expected to grow at 11.2 percent this year compared to 10.9 percent the previous year, according to the Central Statistics Office. The GDP growth is estimated to be 4.9 percent.

The coming week will have a number of data points. CPI and WPI data will come out on Wednesday and Friday respectively. Production data, which is expected to show a contraction of 1 percent, will be announced on Wednesday.

Although inflation data would be benign, rate cuts could get postponed in the backdrop of recommendations of the Urjit Patel committee.

The last parliament session before the general elections began this week but is not expected to pass any important bills in areas like insurance, GST and DTC which will have a direct impact on markets. The session will include a “vote on account” mini-budget on Feb. 17. Election dates are expected to be announced soon thereafter.

Engineers India’s follow-on-public offer received a good response from institutional investors, ensuring that the 5 billion-rupee FPO sailed through smoothly. The telecom spectrum auction has heated up with bids reaching 560 billion rupees, exceeding expectations. Despite this, the government will still find it difficult to meet its divestment target.

Important results next week are Tata Steel, Tata Motors, Coal India, Sun Pharma, Hindalco, ONGC, M&M and State Bank of India. M&M could throw up weak numbers, but all eyes will be on SBI’s non-performing assets. Tata Steel got a rub-off from ArcelorMittal’s positive cues on steel outlook, thus any shortcomings from its results may get overlooked.

Recovery from lower levels provides a renewed confidence that the Nifty would be able to scale back to the earlier zone of 6150-6400 in the coming week. The long-awaited pre-election market rally could be fast and swift. I would still utilize these opportunities to size up the portfolio as I don’t see too many reasons for a breakdown before elections.

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