Consolidation To Continue

Consolidation continued on Dalal Street as the leading benchmark indices declined for another day yesterday. It was much on expected lines as on Friday the IIP data was quite disappointing and even the CPI remained sticky. It was not wonder that the Indices opened gap down and then witnessed further southward movement. While the Sensex closed down by 245 points at 26816, the Nifty closed at 8042 (Down 64 points).

However while the leading benchmark indices have declined the broader market indices witnessed an up move. We have been consistently stating that the mid cap and small cap indices are outperforming the benchmark indices since last few months. With large cap companies already hitting the upper Cap limits for FII investment, we had stated that the mid cap companies would be on the radar of FIIs. Yesterday the mid cap index was up by 0.18% and the small cap was up 0.71%.

Yesterday a few data points were announced during the Market hours and even after the market hours. During the market hours the WPI data was announced for the month of August 2014. India's wholesale price inflation in August eased to 3.74%, its lowest level in nearly five years. The inflation measured on Wholesale Price Index (WPI) was at 5.19 per cent in July 2014 and 6.99 per cent in August 2013. However, RBI has huge challenge to strike a balance between falling investments and reining in inflation while reviewing its monetary policy. As result the market responded negatively to this positive data.

Trade data was announced yesterday where the trade deficit narrowed to USD 10.84 billion in August versus USD 12.2 billion in July. Exports and imports rose marginally on an annual basis, but gold imports surged over 175 percent in August on a year-on-year basis. Gold imports in August stood at USD 2.04 billion against USD 738.7 million, in the same month a year ago. Silver imports, however, fell to USD 245.14 million versus USD 265.8 million on a year-on-year basis.

Overall imports grew only 2.08 percent to USD 37.79 billion. Exports in May and June had registered a growth of 12.4 percent and 10.22 percent, respectively. In July, export growth further fell to 7.33 percent. In April-August period, exports rose 7.31 percent to USD 134.79 billion, says Ministry of Commerce and Industry's data. We feel the declining exports are bit worrisome as it is the lowest level of exports growth in 2014.

As for the global markets, the US Markets remained range bound. While the Dow closed with marginal gains of 0.26%, the S&P 500 closed marginally down by 0. 07%. Experts are of the opinion that the US Fed is gauging the strength of the US economy as it winds down a bond-buying program that is on track to end this October. Some economic data was announced yesterday where US factory production fell 0.1 % in August from July, when it grew 0.4 %. Economists surveyed by Bloomberg had predicted an increase of 0.3 %. The US central bank has been saying since March that interest rates would stay low for a “considerable time” after it completes the asset purchases known as quantitative easing. However now the speculation is that, US Fed may increase the interest rates sooner than later.

Taking the cues from US markets Asian indices are still trading with some amount of caution. Nikkei which was closed yesterday has opened on negative note and is down 0.35%. Shanghai Composite is also trading in red with cuts of 0.24%. Hong Kong markets are close today. The weakness is also seen in SGX Nifty which is trading in red with loss of 25 points (0.31%).

We feel it is expected to be another day of weak opening for the Indian equities. Ahead of the important FOMC meet on September 17, we feel no one would like to take a bold step to take heavy positions home. However the mid cap and small indices are likely to remain strong.