Markets have yet again plunged back into the red zone

Review of the Week ended 09^th Dec 2011.

The markets have yet again plunged back into the red zone after a brief period of positive rally seen last week. The week started off on a very subdued and quiet note as investors keenly waited for clarity from the govt. over its much anticipated retail FDI policy. But yesterday’s decision by the govt. to withdraw the multi-brand FDI policy and go ahead with single brand policy, didn’t manage to cheer investors and they decided to send the markets plunging south. Domestic as well as foreign investors seem to have lost trust in the govt. and its methods of handling key policy decisions and reforms.
 

However there were some good triggers in the market which missed to capture investor fancy to a large extent. The food inflation for week ended Nov 26^th cooled down further to 6.6 per cent as against 8 per cent in the previous week, giving rise to hopes that RBI might take a pause in its rate hike campaign this December. In fact post festive season inflation has been showing clear signs of abating and may come well near the RBI’s comfort zone, if not within it.

On the global front, despite the US jobless claims coming at a 9 month low, ECB cutting down its interest rates to record low of 1 per cent and Chinese inflationary pressures showing signs of abating, the situation on the global front continues to be gloomy as there seems to be no clarity from the euro zone in regards to the depth of the crisis and the measures taken by the leaders there to tackle it. However one positive respite to all this negative news flow is that oil futures have tumbled down by nearly 2 per cent this week with the Nymex falling below the USD 100 per barrel level on expectations of slouching demand led by recessionary pressures in US and Europe.

Going forward, with some minuscule yet significant positive news flows coming from the euro zone summit in Brussels, we expect much needed clarity to settle in by next week however it would be too pre-mature to take a stance at present on the outcome.  

Back home, the rupee also plunged down to Rs 52.06 levels as markets bled this week. Last week the rupee regained to Rs 51.43 per dollar on account of some pull back in the markets. FII net investments in equity markets are at Rs 307.8 crore for a second week in a row with the Dec 2011 FII net investments standing at Rs 1343.4 crore, another positive development ignored by the market.

Moving on, among the sectoral indices, IT index was the lone positive performer this week as industry body NASSCOM maintained its positive growth projections for the sector, cheering the investors. The capital goods index was the biggest looser as investors shunned stocks in this space over reports that industrial output for October 2011 may have plunged into negative territory led by dismal performance in the capital goods sector.

Interest rate sensitive, BANKEX fell on the back of profit taking after posting some decent gains in the recent past triggered by hopes the RBI might pause further rate hikes. India's largest private sector bank by net profit, ICICI Bank, fell 7.12 per cent to Rs 731.55. HDFC Bank fell 4.50 per cent to Rs 444.80. India's largest bank by net profit and branch network State Bank of India (SBI) declined 1.20 per cent to Rs 1863.95.

Metal Index also declined as prices of industrial metals fell globally. Sterlite Industries was down 7.35% to Rs 101.40, Coal India was down 5.31% to Rs 316.65, Tata Steel was down 4.92% to Rs 398.25 and Hindalco Industries was down 2.48% to Rs 131.95.Despite posting a good set of growth in November auto sales, the auto index plunged down by 3 per cent this week.

Among the prominent losers, IB real estate was down by almost 19 per cent over concerns that the valuations for the company may drop following a proposal to demerge its power and infrastructure business into a separate holding company called Indiabulls Infrastructure and Power Ltd (IIPL). Pantaloon retail was down by almost 15 per cent for a second consecutive week as the govt. rolled back the retail FDI bill in Multi-brand. CESC was another such victim as and was down by 11.62 per cent. Aviation major Jet Airways slumped further by 9.05 per cent this week as the aviation industry continues to struggle.

Amongst the gainer, UB gained a massive 15.43 per cent this week on the back of some unusual volumes reported by the stock on the bourses.  

In conclusion, we expect to coming week to be very volatile as investors and traders in the market start building up towards the RBI’s monetary policy review on 16th Dec 2011. All eyes will be now on the headline inflation data and industrial output data expected next week, which could provide some vital cues on RBI’s possible stance. Looking at the Q2 GDP growth of 6.9 per cent, which has shown clear signs of slowdown in the economy and coupled with a cooling off in inflation we expect the RBI to take a pause in its monetary stance on 16^th December 2011 and adopt a dovish approach thereon.