Fundamental
Overview
Indian stock markets had a
pretty good week after SEBI and RBI sought to ease some of the tension
surrounding the weakness in the rupee. The Indian currency did briefly respond
to the regulatory measures aimed at curbing speculation in the currency futures
markets. However, the rupee could not sustain those gains and slipped below the
60-per-dollar mark by the end of the week.
The UPA Government’s policy
flip-flop continued, with reports suggesting that the Finance Ministry intends
to put a cap on domestic gas price. Also, the oil Minister clarified that that
the gas price will be hiked to US$6.8 per mmBtu and not US$8.4 mmBtu as
reported by the media last week. Shares of companies like ONGC and RIL declined
on the back of this news.
Meanwhile, Finance Minster P.
Chidambaram and Commerce Minister Anand Sharma flew to the US to persuade
American investors into pouring dollars into the subdued Indian economy.
In a positive for the Indian
economy, the trade deficit for June narrowed to US$12.24bn from a seven-month
high, helped by a slowdown in gold imports.
Gold and silver import growth
slowed to 22.80% Y-o-Y at US$2.45bn last month. Gold and silver imports had
jumped by 109% in April and May combined.
Globally, US Federal Reserve
Chairman Ben Bernanke reassured world markets on the possible timing of the QE
exit, sending most risky assets higher and gold lower.
The US earnings
season kicked off with aluminium major Alcoa reporting better than expected
numbers. Greece
received troika approval for aid in return for budget reforms.
China’s inflation increased in June liming room for policy
maneuver while its exports fell by 3.0%- coming well below expectations.
Italy’s debt ratings were lowered by one notch to BBB by
ratings firm Standard & Poor's.
The IMF cut its US and global
economic forecasts for this year and next, citing primarily slower growth in
key developing nations as well as a deepening recession in the Eurozone.
The Bank of Japan left
interest rates and monetary stimulus unchanged but the central banks in Brazil and Indonesia hiked interest rates in a
bid to rein in currency weakness.
This Week's Market Round Up:
Sensex, Nifty eke out slim gains
The Sensex and the Nifty
rallied by more than 2.0% each during the week.
The BSE Mid-Cap index was up
~1.0% while the BSE Small-Cap index rose by ~0.80%.
The NSE Banking index was up
~2.50% while the INDIA VIX closed the week at 18.70.
Infosys, HCL Tech, Kotak
Bank, Reliance Infrastructure and Sun Pharma were the top leaders in the Nifty
this week.
Maruti Suzuki, M&M, ONGC,
BPCL and JP Associates were the top five laggards in the Nifty this week.
Shasun Pharma, Gravita India, Fortis
Healthcare and GTL Infra were the main gainers this week in the BSE 500 index.
Gitanjali Gems, MMTC, GSK
Consumer and PC Jeweller were the noteworthy losers in the broader market
during the week.
IT, Healthcare, Sugar,
Capital Goods, Telecom and Pharma were the key sectoral gainers this week.
Gems & Jewellery,
Airlines, Energy and Auto sectors were the main losers during the week.
FIIs pulled out ~US$222mn
from Indian stocks between July 05 and July 11. Their net outflows for July
stand at US$46.10mn after being net sellers of US$1.85bn in June. Their net
investment into Indian shares for May was at ~US$4.0bn versus US$1.0bn in April
and ~US$1.67bn in March. FIIs poured in US$4.57bn into Indian shares in
February after pumping US$4bn in January. FIIs invested US$24.0bn into Indian
shares in 2012.
Mutual Funds were net sellers
for June at INR 269.0 crore. They offloaded shares worth INR 3,508.0 cr from
Indian equities in May. Mutual Funds were net sellers of ~INR 894.00 crore in
April. They had net sold Indian shares worth INR 1,767 crore in March. They
were net sellers of Indian equities worth INR 847.90 crore in February after
being net sellers of INR 5,212 crore in January.
The Rupee was last trading at
59.82 per dollar in late Friday trades as against the previous week’s close of
60.42 to the dollar.
Market Outlook:
Maintain bullish stance...
Indian markets trade at
~14.0x FY14E and ~12.0x FY15E versus historic average of 15.5x. We believe that
valuations have room for upside.
The Indian government has moved
on a number of important policy reforms in the form of FDI in multi-brand
retail & aviation, besides unleashing other measures like SEB debt
restructuring, diesel price deregulation, gas price hike, Cabinet Committee on
Investment (CCI) and direct cash transfer (DCT). The Union Budget has also been
balanced and credible one with more emphasis on fiscal correction.
A creditable reform from UPA
II has been the curtailment of the fiscal deficit, the diesel price
deregulation and more recently the proposed gas price hike. The Finance
Minister has also promised continuation of the reforms agenda, notwithstanding
the political uncertainty surrounding the Lok Sabha elections.
So, the Indian markets could
gradually advance over the next 12-18 months, as the Government’s policy
measures start to bear fruit. FIIs are likely to remain positive towards the
Indian equities this year also, as the RBI could sooner or later resume its
easy monetary stance amid steady moderation in inflation.
Further, global central banks
too continue to keep their easy monetary policies for the moment, leaving the
world markets awash with liquidity. Some of this abundant liquidity is expected
to come to the Emerging Markets such as India.
We see the main Indian
indices ending FY14 on a positive note although in the short-term there could
be some temporary hiccups due to political uncertainty, weakness in the rupee
and some uncertainty surrounding Fed’s QE exit.
Sectoral Outlook: Recommend
mix of consumers and rate-sensitives...
The RBI in its June 17
Monetary Policy meeting left the repo rate unchanged at 7.25%, citing w fragile
Rupee, sticky CPI and high Current Account Deficit (CAD). The CRR was also left
untouched at 4.0%.
The RBI reiterated that its
hands are tied by a weak Rupee, elevated CAD, stubborn CPI and volatile global
backdrop. In its May Annual Policy, the RBI projected relatively lower level of
GDP growth for FY14 at ~5.7% YoY while WPI inflation has been projected at
~5.5% YoY.
The RBI is likely to cut the
repo rate by another 50bps during the remaining part of FY14 and undertake open
market operations (OMO) to ease liquidity conditions and aid monetary
transmission.
We advice investors to play
quality interest rate-sensitive shares from long-term perspective like Bajaj
Finance and DCB, besides defensives such as Alembic Pharma and Mindtree.
At the same time, in
consumption we recommend buying into TV-18 and V-Guard Industries. Other stocks
we like include Mid-caps like Amara Raja Batteries and Bharat Forge.
Outlook:
The earnings season has
started on a positive note, with IndusInd Bank and Infosys reporting good
numbers for the April to June quarter. More results will pour in over the next
few weeks. Exide, Oberoi Realty, TTK Prestige, Ashok Leyland, HDFC Bank, Axis
Bank, Bajaj Finserv, Bajaj Finance, Kotak Mahindra Bank, Mindtree, Bajaj Auto
and HDFC are among the important companies announcing their results next week.
But the important events for the domestic markets will be the monetary policy
meetings of the RBI and FOMC. Markets will also watch out for incremental
policy measures from the Government to try and check the sharp fall in the
rupee.
Technical
Round-up: Bulls back on the
street...
The Nifty opened the week on
a negative note and took support near to the 200DEMA. Thereafter Nifty bounce
back sharply and broke the mentioned resistance of 5900 and tested our
mentioned target of 6000 levels. Nifty further continued its northbound journey
and made a high of 6019. Finally the Nifty closed at 6009 with a gain of 2.55%
on w-o-w basis.
Pharma and FMCG index
outperformed the broader markets while PSU Banks still continued to
underperformed.
Nifty Outlook:
Nifty
surpasses 6000 previous submit...
After taking support at
200DEMA the Nifty bounced back sharply and retraced 61.80% of the recent fall
from 6229 to 5566.
On the daily chart Nifty is
making Higher Top and Higher Bottom and oscillators also trading positive.
Going forward we believe that
uptrend will going to continue in the Nifty and it can test 6100 levels.
Downside the Nifty has
support in the range of 5840-5800.
PETROL PRICE HIKED BY Rs1.55 A LITRE WITH EFFECT FROM MIDNIGHT
Petrol price was on Sunday
hiked by asteep Rs. 1.55 a litre, the fourth increase in rates in six weeks, as
falling rupee made oil imports costlier.
Oil companies raised petrol
rates by Rs. 1.55 a litre, excluding local sales tax or VAT, with effect from
midnight.
Actual increase will be
higher and will vary from city to city depending on local taxes.
Petrol price in Delhi has been hiked by
Rs. 1.86 per litre toRs. 70.44, effective on Monday, as against Rs. 68.58
currently.
This is the fourth increase in rates since
June.
Oil firms had on June 1
raised prices by 75 paisa, excluding VAT, and followed it with a Rs. 2 per
litre increase on June 16 and a Rs. 1.82 on June 29.
The revision in prices, as
per the practice of changing rates in line with cost every fortnight, was due
on Tuesday July 16 but will be raised a day earlier.
However, there will be no
change in diesel prices just yet as the revision in its rates are due at the
month end.
With the latest increase, all
of the gains made from four reductions in prices earlier this year had been
neutralised.
The rates cuts had brought
down the price to Rs. 63.01 at the beginning of May.
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