Heavy sell off in the markets, Sensex & Nifty down 5%

Weekly review of the markets - 14th Nov - 18th November, 2011

The markets witnessed a heavy sell-off this week over renewed concerns from the euro zone, rupee depreciating further to breach the Rs 51 mark and India Inc. posting not so impressive Q2 earnings.
 

Though investors anticipated margin pressures to affect the bottom-line of companies as a result of persistently stubborn inflation and high interest rates, the sharp rupee depreciation has just added to investor woes and worsened the sentiments.

The week witnessed, the October headline inflation data marginally higher at 9.73% as against September inflation of 9.72%. This was despite a rising set of inflation internal data led by high demand for food items as a result of the Diwali festive season.

In fact inflation internals for the week ended November 5th also saw a cool-off where rate of price increase for food articles came in at 10.63% as against 11.81% seen on Oct 29th. This has given rise to speculation that the RBI might take a pause in its hawkish stance in December.

Also in a bizarre move, the OMC’s rolled-back petrol prices by Rs 2.2 citing a smoothening in crude oil prices and rupee versus dollar movement. But in reality this was a politically-driven move to please the vote bank and douse the anger ahead of the Parliament’s winter session, scheduled to begin on 22nd Nov, 2011.

On the global front, the European GDP data which was released on Tuesday this week grew 0.2% from the previous three months. Expansion in Germany and France helped to keep the economy growing in the third quarter. However with no clarity over the financial stability of countries like Greece and Italy the euro zone has plunged again into a sell-off mode. In fact yesterday, Spain triggered a fresh round of concerns as the country’s sovereign bonds climbed to touch all time high yields. All this combined has led to a major sell-off at the global level, which has hurt almost all major market indices.

In stock specific action, defense contractor Pipavav shipyard has shed 35% this week over news reports that IT raids and searches were conducted at its premises. Suzlon tumbled 31.5% as a group of promoters off loaded 2% of their stake in the company in open market trades. Shree Renuka lost 32% this week on the back of a weak set of Q2 numbers. On a yoy basis the company reported a net loss of Rs 616 cr as against Rs 128 cr.

Among the SENSEX, infrastructure company Jaiprakash Associates was the biggest loser as the stock tumbled 18.16% due to weak Q2 operating performance. Among other SENSEX losers were BHEL, M&M, Maruti Suzuki, DLF, Tata Steel, RIL and ICICI who lost between 6-15% this week.

Among the winners, pharma major Cipla was up 9.42% on the back of good Q2 numbers. Pantaloon Retail jumped 15% this week on the back of positive flows to be expected by a proposed relaxation for FDI investment in retail sector.

In conclusion, looking at the way the markets have panned out this week and keeping in mind the global outlook, times ahead do not look so favorable. However as for next week, we can expect the markets to give a slight bounce back, but on the large one can expect another volatile week on the cards ahead. Investors must also closely watch the US markets as it will release trends of the overall economic activity (its leading indicators), including employment, initial claims, permits of new housing construction etc., and these will further provides cues for the market outlook.