Expert Zone

Straight from the Specialists

India Markets Weekahead: Markets move into pre-election rally

Photo

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

A spectacular rally in the last few days has put the market in a pre-election mode, buoyant with hopes of a stable and reform-oriented government. Led by institutional buying and the resultant short squeeze, the markets rallied more than 3 percent in the last two trading sessions – closing the week at 6526, a record high for Nifty. The markets seemed to have moved into a new territory with metals, realty, banking, capital goods, infrastructure and energy sectors participating in the rally.

 Generally, the data points for a pre-election rally are the developments on political activities and opinion polls. The economic data takes a backseat in this “rally of hope” and markets take a keen interest in electoral analysis.

FIIs have pumped in about $500 million in March and India seems to be the preferred destination among emerging economies. This was aided by improved current account deficit which resulted in a strong appreciation of the rupee to below 61/USD, a three-month high. Ukraine crisis will continue bothering the markets but the effect on India will be minimal because of the influence of elections. I believe that the U.S. will not act beyond issuing threats as that may have far reaching consequences for the euro zone as well as for its own economy. The March 16 Crimea referendum and subsequent events would be keenly watched.

In the present conditions, I would lay higher emphasis on sentiment rather than on past data. The manufacturing PMI was favorable at 52.5, reflecting confidence and indicating that the worst is behind us. This confidence will result in increased spending and asset building if backed by a stable government. The wholesale price index and consumer price index data this week will be benign and act as catalyst. January industrial production data will be announced on Wednesday and is expected to show contraction.

India Markets Weekahead: Markets back on track for pre-election rally

Photo

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

The week started on a sombre note but with institutional activity picking up, the Nifty closed with gains of 1.97 percent at 6276 despite a mid-week trading holiday. Political activity also gained momentum with 11 parties coming together to form a Third Front to oppose both national parties.

 

The Election Commission may announce election dates in the coming week — the code of conduct coming in will halt any policy decisions.

Is gold a good investment once again?

Photo

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

The increase in gold prices in the last two months has rekindled interest in the yellow metal as a vehicle for investment. It was after the 2008 global financial crisis that gold became the most preferred asset, with prices doubling in four years.

Why was gold preferred? It was not so much as a hedge against inflation but as an insurance against uncertainty. When the economy is faltering and the future looks bleak, gold becomes a preferred asset.

India’s disrupted democracy

Photo

(This piece comes from Project Syndicate. The opinions expressed are the author’s own)

India’s 15th Lok Sabha (the lower house of Parliament) passed into history ignominiously this month, following the least productive five years of any Indian parliament in six decades of functioning democracy. With entire sessions lost to opposition disruptions, and with frequent adjournments depriving legislators of time for deliberation, the MPs elected in May 2009 passed fewer bills and spent fewer hours in debate than any of their predecessors.

Tough to get the math right in 2014/15 interim budget

Photo

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

Finance Minister P. Chidambaram went more by economic considerations than political ones in manoeuvring his pre-election budget, the focus being on fiscal consolidation with an eye on rating agencies.

The 2014/15 interim budget did not have any new populist measures. The minister may have been convinced that such gimmicks just before elections do not yield votes. Also, there was hardly any time to effectively roll out a new scheme.

Why the Fed is not worried by emerging market moves

Photo

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Several emerging market central banks have been forced to react to market events already this year. Interest rate increases in India, Turkey and South Africa followed bond or currency market volatility. Argentina has endured dramatic moves in its currency, and Brazil has been forced to tighten policy.

Slow pick-up in India’s GDP growth

Photo

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

GDP estimates by the Central Statistics Office for the 2013-14 fiscal year show an improvement over the previous year. But the extent of improvement is too small for comfort. Possibly, in the final revision, that small margin may disappear or even turn negative.

This year, India’s GDP is expected to be up 4.9 percent from 4.5 percent the previous year. This additional growth has come mainly from agriculture, due to a favourable monsoon. Agricultural growth was three times the previous year. Production of non-food grains (like vegetables and fruits), and animal products (like meat and eggs), did not increase adequately in spite of the inflated demand and will continue to be the main source of inflation.

India Markets Weekahead: Time to size up portfolio

Photo

(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.

Interest rates likely to remain high

Photo

(Rajiv Deep Bajaj is the Vice Chairman and Managing Director of Bajaj Capital Ltd. The views expressed in this column are his own and do not represent those of Thomson Reuters)

The Reserve Bank of India (RBI) raised its benchmark repo rate by 25 basis points to 8 percent at its policy review meet in January. The reverse repo rate rose to 7 percent while the bank rate and marginal standing facility rate climbed to 9 percent. This is the third hike in repo rate since RBI Governor Raghuram Rajan assumed office in early September.

As liquidity dries, time for fundamentals

Photo

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

The focus is back where it should be for equity investors – fundamentals.

In the past few years,  markets around the world have swayed to the wave of liquidity unleashed by central banks in a bid to get their economies back on track. The U.S. Federal Reserve, for one, was buying as much as $85 billion of bonds a month since September 2012. But that tap is beginning to taper with the Fed reducing purchases by $10 billion in January and another $10 billion in February.

We feel that this, together with a host of factors at home, sets the stage for a more sanguine approach to equities. I indicated in my note last month that we expect 2014 to be a year of fragile recovery for the Indian economy. The scenario will be similar for Indian equities.

  • Editors & Key Contributors