Indian Markets Extend Positive Rally For 4th Consecutive Week

Review of the Week ended 27thJan 2012

The markets have extended their positive rally for a fourth consecutive week with the Sensex now posting more than 10 per cent gain on a YTD basis. The year 2012 has started off on an excellent note and the Indian markets have been amongst the top performing global indices this year.

In fact the broader market indices like the small-cap and the mid-cap have outpaced the Sensex, suggesting that it’s not just the bigwigs that are fuelling this rally, but that the smaller names have also had a very crucial part to play. The mid-cap and small-cap indices have notched up healthy gains of 15 per cent and 13 per cent respectively.

The tone of the past week was majorly dictated by the RBI’s decision to cut back on the CRR in order to infuse some much needed liquidity back into the system. While most analysts and experts on the streets expected the RBI to refrain from undertaking any cut-backs in the rate on January 24, the final decision to cut the CRR by 50 bps came as a surprise and the markets cheered the development.

However, going forward the RBI’s outlook on the overall economy with respect to inflation and fiscal deficit situation is very cautionary. In its policy review the RBI has mentioned that food inflation may bounce back soon and has further raised concerns over the non-abating inflation on petroleum and manufactured goods. It has also nudged the government to de-regulate the diesel prices in order to reduce the subsidy burden and consequently keep the fiscal deficit in check. 

On the global front, the mood has turned very mixed and there isn’t any clarity on the news and developments coming in from Europe and the US. In the US, after starting off the New Year on a positive note, the stocks this week have ended flat as investors took some profits off their investments. One of the major developments there was the Fed’s decision to keep the interest rates near the zero levels through late 2014, which is a huge positive for the markets there and worldwide. Europe is, as usual, at its uncertain best. While Greece’s talks with its private lenders are going smooth, the IMF has raised fresh concerns over the zone’s financial health and said that the crisis in Europe could severely impact the global growth prospects.

Consequently, it has sharply cut its global growth rate forecast for 2012 from 4 per cent to 3.3 per cent. The projected growth rate for the year 2013 is now 3.9 per cent. The IMF warned that global growth would come in about two percentage points below its already soft forecast if the European leaders allowed the crisis to festerl.

Moving on, the rupee seems to be convincingly winning its battle against the dollar as the year progresses. The rupee has appreciated further by around 2 per cent this week as investors pumped in more money into the equity markets and shunned the dollar. As a result of the positive inflows this week, the FII net investments in equity now stand at Rs 1,889 for the week ended January 20, 2012 and for the month of January the same now stands at Rs 7,777.94 crore.

Among the sectoral indices, the capital goods sector was amongst the top gainers for the week, notching up nearly 6 per cent gains. The auto and IT companies came in next at 4 per cent gains. The interest-sensitive realty index was the only one treading in the negative zone.

Among the individual stocks, Suzlon was the topmost gainer for the week as investors built up some expectations from the company against the backdrop of some significant order wins. IB Real Estate was once again among the top gainers as institutional investors displayed some fancy towards infra and realty stocks in the wake of some improvement in the macro economic dynamics. Last week’s top gainer Essar Oil continued to lead as investors renewed buying on bottom fishing tips. Amongst the top losers were prominent names like Untied Breweries, Adani Power, Hero MotoCorp and Ranbaxy Labs.

Given the scenario we urge investors to start booking partial profits on investments that have yielded significant gains over these past few weeks. The markets are likely to turn volatile as the Q3 results’ season continues ahead. The global factors are very jittery now with the IMF downgrading its growth forecasts. There also seems to be no clarity on Greece’s efforts to resolve issues with its private lenders. Add to this the caution that the RBI has raised over the near future of the Indian economy. Keeping all this in mind we recommend readers to book profits and keep cash in hand to buy again at cheaper prices.