India Markets Weekahead – Be fearful of greedy street

December 7, 2014

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

The past week belonged to individual stocks as the Nifty took a breather, closing with a small loss of 0.45 percent at 8,538. A host of stocks related to defence, railways and power ancillaries hogged the limelight on hopes of huge order flows. Jewellery stocks rallied after the government relaxed gold import norms.

A man looks at a screen across the road displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) building in Mumbai May 13, 2014. REUTERS/Danish Siddiqui/Files

The dovish statement from the RBI governor fired up banking stocks on expectations of a rate cut in early 2015. The encouraging PMI data both for manufacturing and services further boosted sentiments, aided by auto sales numbers which surprised analysts. The core sector output rose by 6.3 percent. The divestment programme too got a thumbs-up with SAIL’s stake sale getting oversubscribed by more than two times.

Overall, it was a week of benign data and news flow which did not reflect in the benchmark indices.

The ongoing winter session of parliament has witnessed disruptions due to the controversial pro-Hindu comments made by minister Sadhvi Niranjan Jyoti. While the government is hopeful of passing key legislation including a long-delayed insurance reform, the opposition doesn’t seem to be in a mood to relent. The disruptions could also jeopardize introduction of the GST Bill even as the government is having second thoughts on the Land Acquisition Bill. This could be one of the concerns for the market which was expecting reforms to speed up. However, the Coal Mines (Special Provisions) Bill, 2014 will be introduced to replace the ordinance which was promulgated to facilitate auction of de-allocated coal mines.

Oil marketing companies are due to revise the prices on December 15. The government has increased excise duty twice in the recent past, thus reducing the margin cushion for the OMCs, which could prevent them from announcing a larger price cut.

Crude oil seems to have found a temporary bottom as it came off its lows last week. Falling oil prices

A man looks at a screen across the road displaying the election results on the facade of the Bombay Stock Exchange (BSE) building in Mumbai May 16, 2014. REUTERS/Danish Siddiqui/Files

should be music to the ears of airlines because the bulk of their spending goes to aviation turbine fuel. While Jet Airways has soared 50 percent in the last one month, SpiceJet is facing difficult days due to a cash crunch followed by the aviation authority banning it from accepting advance bookings beyond a month. The sequence of events seems eerily similar to what we witnessed in 2012 with Kingfisher Airlines.

The government will release IIP data for October in the coming week which could show a healthy growth, but this should be seen in light of a low base during the same period last year when IIP contracted by 1.8 percent. The consumer price inflation (CPI) data for November will be released on December 12. Inflation fell to 5.52 percent in October, and it would be interesting to see whether the declining trend continues before the base effect kicks in from December.

We are currently in a virtuous cycle which is propelling stocks upwards. It’s getting difficult to justify buying opportunities without tweaking the parameters normally applied in the last few years. Market players have again got accustomed to quick gains, thus some of the underperforming sectors such as power and infrastructure don’t find many buyers.

It’s hard to believe India will achieve 8 percent growth projected in the next two-three years without a strong performance by power and infrastructure sectors. Although FIIs have been net buyers for the week, it’s possible that some of them may resort to profit booking before the year-end to lock in their stupendous gains. It’s time to be fearful as the market is filled with greed for quick returns.

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