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Straight from the Specialists

India Markets Weekahead: Pre-budget rally may be muted

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

The Nifty touched a new high of 7,700 before cracking on Friday to slip about 0.5 percent for the week. This was primarily triggered by the unrest in Iraq and the subsequent rise in crude prices.

The markets were also overbought aided by a relentless rally since May 9‎, with the CNX Nifty climbing about 16 percent, S&P BSE Midcap Index rising 26 percent and the S&P BSE Small cap index jumping 35 percent. The last one-month saw 115 multi-baggers with 92 percent of traded stocks gaining during the period. The probability of picking a loser was minimal. It seemed making money had never been so easy.

Important macro data such as IIP and CPI were announced during the week. Though IIP for April witnessed a 13-month high of 3.4 percent, the low base effect was a possible reason for the muted reaction. Inflation too was benign, dropping to 8.28 percent. The trade deficit continued to disappoint, widening to $11.2 billion though exports grew to a six-month high at $27.9 billion.

The rupee also witnessed a continued decline ending the week at 59.68 against the dollar.  Two-wheeler and car sales for May saw a healthy upsurge of 11.71 percent and 3.08 percent after a long slowdown but most of the stocks had already outperformed based on an expected turnaround in buyer sentiment.

In defence of the defensives: Why IT, pharma stocks are not pariahs

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

Expectation that the ongoing general election will throw up a stable government has spurred a return to risk in domestic equities. The consequent rally has meant those favoured defensives of the sluggish times – information technology and pharma stocks – received a shearing.

The CNX IT index shed 7.8 percent and CNX Pharma 10.1 percent in March – even as the benchmark Nifty surged 6.8 percent.

As liquidity dries, time for fundamentals

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(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.

India Markets Weekahead: Investors to remain bullish in election season

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

A surprise decision by the Reserve Bank of India (RBI) to keep the repo rate unchanged and a dovish statement from Ben Bernanke in his last news conference as U.S. Federal Reserve Chairman improved sentiment with the Nifty closing 106 points higher at 6,274.

Markets tottered for three days during the week amid fears the Nifty could break a crucial support zone between 6,120 and 6,140. Investors had discounted a 25 bps hike in monetary policy based on inflation numbers that were the highest in 14 months. RBI Governor Raghuram Rajan should be lauded for taking a practical stance as food inflation is expected to cool considerably in December due to improved supplies and the monsoon effect.

India Markets Weekahead: Lack of positive triggers in the near term

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

Indian markets are in a corrective phase after RBI Governor Raghuram Rajan’s monetary policy review on Sept. 20 put a damper on investor expectations. If Rajan had played to the galleries, we would have seen a stock market bubble. The move from pessimism to euphoria — a rally of nearly 20 percent in less than three weeks — without any perceptible change in ground realities, would have led to a bull trap. Though participation levels were not high, FIIs had turned buyers and it would have been a matter of time before dormant market participants jumped into the fray.

Barclays is the latest to cut India’s GDP forecast to 4.7 percent. Most of the others have cut their forecast to below 5 percent although the government is still hoping for an early recovery. The banking sector was under pressure after Fitch cut its rating for a number of public sector banks such as Punjab National Bank, Bank of Baroda and Indian Bank.

NSEL crisis puts spotlight on conflict of interest

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

The ongoing National Spot Exchange Ltd (NSEL) payment crisis has highlighted the need for better regulation of commodities exchanges and increased transparency in corporate governance.

When will the rupee stabilize?

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

The rupee hit a series of record lows in August, rattling the stock market and forcing policymakers to step in. But the fall was necessary to correct India’s past mistakes and improve the dynamics of the economy. Stock markets were jolted because the rupee’s slide was sudden. But then that is how markets behave.

International markets, be it for currencies or commodities, are sensitive and therefore volatile due to underlying speculation that is difficult to control. Eventually, however, a stable point is reached at which point they settle down.

Why FIIs are dumping India

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

The Indian stock market is in a tizzy as foreign institutional investors (FIIs) seem to have pressed the sale button. Securities and Exchange Board of India (SEBI) data shows that while there was a considerable slowdown in FII inflow in March, we are seeing an outflow in April.

While net FII inflow in the equity markets remained above $4 billion for each month between December 2012 and February 2013, the net inflow for March was reduced to $1.68 billion. The trend reversed and during April 3-10, there was a net outflow every day, with cumulative outflow of $269 million during this period.

The stock market’s delayed response to Budget 2013

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

Finance Minister P. Chidambaram tried to humour the market in his budget by cutting the Securities Transaction Tax (STT) which had been one of its sore points. But the market was not amused. The Sensex continued to slide, indifferent to the budget which was presented with a lot of expectations.

This appears to be rather strange because the budget was well received by the industry, in spite of the increase in surcharge from 5 to 10 percent. It was possibly the realization that the finance minister lived up to his promise of cutting fiscal deficit to 4.8 percent which created an infectious confidence in growth revival.

India Markets Weekahead: RBI policy review to be catalyst for markets

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

This was a listless week with the Nifty in the same band of 5640 and 5720 as the previous week, closing about 20 points lower at 5664. The festival  season has begun but the mood on the street remains cautious.

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