Money on the markets
A maturing market amid the mayhem
from Expert Zone:
India Market Weekahead – Policy action, rupee to decide market direction
(The views expressed in this column are the author's own and do not represent those of Reuters)
The week gone by displayed indecisiveness by participants as the markets garnered small gains after moving in a tight range. The Nifty managed to hold on to the 4900 level mark as investors cheered the government’s announcement to raise petrol prices in an attempt to revive the policy inaction tag.
State-run oil marketing firms took the long overdue step of raising petrol prices by 7.50 rupees per litre -- the steepest ever increase in retail prices. The revision comes as the rupee hit an all-time low against the dollar leading to a jump in the oil import bill. As expected, the government faces strong protests by the opposition and a partial rollback could be on the cards in the next few days. This could also delay the decision on the increase in retail prices of diesel and LPG which form a lion’s share of the subsidy bill and is one of the important signals about the seriousness of the government to pull through bold and tough measures.
The rupee slid further during the week and crossed 56 a dollar. Token measures by the Reserve Bank of India (RBI) in the form of 50 percent conversion of exporters’ dollar holdings into rupee provided some respite. Given the short-term risk conditions, the rupee will remain generally on the defensive and a rally beyond 52-53 does not seem likely in the near-term.
The coming week may see heightened volatility as the derivatives contracts are set to expire on Thursday. The announcement of January- March 2012 quarter gross domestic product (GDP) data on Friday will provide an important indicator of the health of the economy but again the expectation is tempered. The Indian economy expanded 6.1 percent in the October-December 2011 quarter from a year earlier, the weakest pace of expansion in more than two years, hurt by slower growth in manufacturing output and a contraction in mining production. With current account and fiscal deficit along with weak investment climate playing a spoilsport, the GDP scare has intensified further.
HSBC's monthly purchasing managers' index (PMI), which indicates the health of the manufacturing sector, is likely to be released some time this week. The HSBC India PMI rose to 54.9 in April from 54.7 in March.
Automobile and cement shares will be in focus as companies from these two sectors will start unveiling monthly sales volume data for May 2012 from Friday. After a fall in April 2012 sales, demand continues to remain weak in May. Pessimism is expected to increase after the recent hike in fuel prices. May is a seasonally muted month for car makers and inventory levels are also expected to be high.
from Expert Zone:
India Market Weekahead – Volatile market within a narrow range
(The views expressed in this column are the author’s own and do not represent those of Reuters)
A sharper-than-expected cut of 50 basis points in the repo rate boosted the benchmark indices early during the week. However, as expected, the Nifty could not gain higher than 5350 as apprehensions about the limited scope of further rate cuts suppressed sentiment.
The Reserve Bank of India (RBI) sounded cautious as recent growth trends indicate the economy is operating below its post-crisis levels. We anticipate a very limited scope for further reduction in policy rates going ahead as persistent liquidity deficit would make rate cuts difficult. Also the upside risk to inflation remains and further slippage on the fiscal front can aggravate inflationary pressure.
Globally, the euro zone markets also witnessed positive action following a successful bond auction by Spain and France. Appetite for these bonds during such distress times renewed some hope of revival in that region.
Reliance Industries came out with its Q4FY12 numbers after market hours on Friday. Its net profit of 42.4 billion rupees just fell short of the street estimate of 43 billion rupees, down 21 pct year-on-year. Lower production from its KGD6 offshore fields and weak refining margins dented profits. Sales, however, grew 16 pct to 878 billion rupees. Due to falling KGD6 production and weak cyclical margins, its near-term earnings are expected to remain subdued. The stock should remain sideways for some more time due to a lack of positive triggers, with the downside protected due to the ongoing buyback plan. Among cement heavyweights, Ambuja and ACC results also disappointed markets.
For the coming week, the markets are expected to remain volatile on account of derivative expiry. Some of the major corporate results -- beginning with TCS on Monday -- will remain crucial. Others include Sesa Goa, Wipro, Sterlite Industries, ICICI Bank, Axis Bank, Jindal Steel & Power, Siemens and Maruti Suzuki.
The rupee continued to be weak quoting above 52 rupees against the dollar. Though the RBI intervention in the currency market was expected to stem the fall, there doesn’t seem to be any such move. The rupee would continue to remain weak within a range. Oil prices gave some respite by correcting to $118.Closer home, with no action on increasing the retail prices of petro products, the subsidy burden continues to balloon.
What happened on friday 2.20 in NSE Will shudder many who witnessed helplessly and many incurred losses. It seems, Indian market is close to ‘ Circuit’?
from Expert Zone:
Brace for volatility, but utilise opportunity
(The views expressed in this column are the author's own and do not represent those of Reuters)
After a 21 percent run so far this year due to unabated liquidity flow, markets paused for two weeks in a row with a cut of close to 5 percent. Data showing a slowdown in GDP growth in Q3 December spooked investors while macroeconomic worries arising from high oil prices also weighed on sentiments.
Foreign institutional investors’ (FII) flow continued unabated with $5 bln in February and $7 bln so far this year. Domestic institutional investors continue their selling spree with a net sell figure of $2.4 bln in February and $3.8 bln YTD.
The European Central Bank (ECB) announced 530 bln euros in the second Long-Term Refinancing Operation (LTRO) operation that was marginally higher than expected and compared with a 489 bln euro figure last time. However, there are still fears looming the Greek crisis has still not been resolved and there will eventually be a Euro exit as we have been indicating in the past.
Back home, the 5 percent government stake sale through the ONGC auction route scraped through with Life Insurance Corporation of India (LIC) moving in at the last minute to save the day for the government. There were debates the floor price was on the higher side. As a result, a large number of FIIs and mutual funds did not participate in the bidding. The decision makers needed to look at the market reality than pure mathematics. Any issuer should always pay heed to the reference price (which is the market quote) and give a suitable discount irrespective of the fundamentals. The ground rule of the market -- “the market price captures the current value of the stock” -- seems to have been forgotten by the decision makers. No investor (other than strategic), whether an institutional one or retail, would pay a premium especially when it’s not a scarce commodity. The government has to take this into account while strategising future divestments with regards to the pricing.
Markets this week are expected to remain volatile with three big events lined up over the next fortnight -- Uttar Pradesh election results on March 6, RBI credit policy on March 15 and the Union Budget on March 16.
If one were to believe the various exit polls, the Samajwadi Party (SP) may be set to regain power and is likely to win around 185 seats in the 403-seat Uttar Pradesh assembly. However, it remains short of majority and may need a partner. The stock markets have to some extent build on a SP-Congress alliance; but in case they stick to their pre-poll stand of not forging a partnership, there also remains a possibility of a hung house with SP as the largest party. Hence, we could have a scenario of President's rule.
from Expert Zone:
India Market Weekahead: RBI policy holds the key
(The views expressed in this column are the author's own and do not represent those of Reuters)
Markets extended a rally for the third consecutive week led by strong FII inflows. FIIs have pumped in $1.2 billion so far this year as risk sentiment stabilised after several European debt auctions saw lower borrowing rates and overwhelming demand. Improvement in U.S. economic data, rupee appreciation and December quarter earnings exceeding lower expectations helped the market rally nearly 8 pct in three weeks.
The initial set of corporate results surprised the street as HDFC Bank, Axis Bank, Wipro, TCS, HCL Technologies and Hero MotoCorp posted better-than-expected numbers.
However, Reliance Industries (RIL) disappointed with a net profit de-growth of 13.6 pct year-on-year on the back of lower refining and petrochem margins. Its gross refining margins declined sharply to $6.8 per barrel from $9 per barrel. The buyback of $2 billion at a maximum price up to 870 rupees/share for up to 120 million shares or 3.6 pct equity via open market is seen as a cover-up for the subdued results. RIL stock has already gained 8 pct during the week after the announcement of the buy-back program. We may see a knee-jerk reaction to the results when trading opens on Monday but the buy-back may provide a cushion at the lower end.
As expected, shares of power generation companies gained after Prime Minister Manmohan Singh pledged help on chronic power shortages in the country in its meeting with business leaders. Our top pick Tata Power jumped 9 pct while NTPC gained 5 pct. Any action at the ground level will lend a helping hand to other sectors such as banking where there is a fear of NPAs from the power sector as well as capital goods which has seen a slowdown in order flows.
The rupee maintained a stronger tone during the week and strengthened to near 50 levels against the dollar. Sustained net inflows so far in 2012 along with short covering helped strengthen the rupee. It may be difficult for the rupee to extend the recovery further in the near term and we expected consolidation at current levels.
The coming week is truncated on account of Republic Day on January 26. We have the all important quarter review of monetary policy on January 24. The Reserve Bank of India (RBI) is widely expected to keep its key lending rate -- the repo rate -- steady. However, a few sections of the market are expecting a CRR cut.
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