A 'Full of Surprise' MONDAY

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.