Markets Rallies on Reform Measures And Anticipated Rate Cut
DSIJ Intelligence / 08 Jun 2012
After the troubled month of May, which saw a major decline in the Indian markets, the first week of June has brought some cheer to the investors who witnessed some strong positive momentum, thus providing the much-needed relief.
After the troubled month of May, which saw a major decline in the Indian markets, the first week of June has brought some cheer to the investors who witnessed some strong positive momentum, thus providing the much-needed relief. On June 6 the Sensex recorded the highest single-day gains in the past one year. However, the rally this week mainly on the Hope of a rate cut by the RBI and due to the reform measure taken by the government as regards the petrol price hike.
| Benchmark Indices | |||
|---|---|---|---|
| Index | 1-Jun-12 | 8-Jun-12 | % Change |
| SENSEX | 15965.16 | 16718.87 | 4.72 |
| NIFTY | 4841.6 | 5068.35 | 4.68 |
| Hang Seng | 18558.34 | 18502.34 | -0.30 |
| Nikkei | 8440.25 | 8459.26 | 0.23 |
| Shanghai | 2373.44 | 2281.45 | -3.88 |
| Dow Jones* | 12393.45 | 12414.79 | 0.17 |
| S&P 500* | 1310 | 1315.13 | 0.39 |
| NASDAQ* | 2827.34 | 2844.71 | 0.61 |
| Bovespa* | 54490 | 52481.44 | -3.69 |
| FTSE* | 5320 | 5447.9 | 2.40 |
| DAX* | 6264 | 6144.22 | -1.91 |
| CAC* | 3017 | 3047.37 | 1.01 |
| * closing till Thursday | |||
The market in the previous week saw a sharp correction after the economy witnessed the weakest GDP growth of 5.3 per cent for the March quarter. The government, as a result, took some hasty steps to bring the economy back on its growth track by outlining an ambitious agenda to put infrastructure projects in a fast forward mode. Prime Minister Manmohan Singh on Wednesday sent out a strong signal stating that the government meant business and that the initiatives were part of efforts to pull the economy out of “turbulent weather” and move towards 9 per cent annual GDP growth.
However, a lot still needs to be done on the policy front to bring the economy back on the high growth track and till then the upward movement in the markets is unlikely to be sustained. In the immediate term all eyes would be on the Reserve Bank of India’s mid-quarter review of the monetary policy for 2012-13, which is scheduled for June 18, 2012. Prior to this event the April month IIP figures will be announced on June 12 which will give more clarity to the government and to the markets.
Meanwhile, there are some concerns which are still persisting in the economy, one of which is the depreciating rupee which continues to be a major headwind for the economy. However, it has shown signs of appreciation but is still stringently high above the comfort zone. The rupee is currently trading at 55.14 against a dollar. And Brent crude in the last one week dropped significantly to USD 97.86 after which it came down on Thursday from the level of USD 125 in the past couple of months to less than USD 100 per barrel, which is good for Indian economy. But the depreciating rupee has offset some of this benefit.
| Currency Rate | ||
|---|---|---|
| Index | 1-Jun-12 | 8-Jun-12 |
| USD | 56.355 | 55.364 |
| EURO | 69.39 | 69.2125 |
| GBP | 86.2 | 85.6398 |
| JYP (per 100) | 72.06 | 69.88 |
| Key Global Indicators | ||
|---|---|---|
| Index | 1-Jun-12 | 8-Jun-12 |
| Gold | 28,944 | 29,341 |
| Silver | 55,330 | 53,849 |
| Crude Oil (Brent) | 100.03 | 97.86 |
| Crude Oil (Nymex) | 85.07 | 82.31 |
On the global front, developed markets like that of the US and Europe also posted strong performance in the last week. Dow Jones, S&P and other European markets like FTSE and CAC traded higher in the range of almost 1 per cent. This was on the back of hope that the Fed was likely to announce the third round of stimulus measures to further boost growth in the world’s largest economy. However both Fed and ECB, on Thursday, decided not to go for any rate cut or for any stimulus package after which investors were disappointed and the markets went into the negative zone. Ben Bernanke remained silent on the third round of quantitative easing (QE) and said that at present things were not in favour of QE and that he might consider going ahead if the economic environment got worse from here on. The European markets ended on a mixed note with FTSE and CAC closing with gains of 2.40 per cent and 1 per cent respectively while DAX was down by 2 per cent.
The global markets are currently very sensitive to credit problems, especially from the European region. Fitch has cut Spain’s credit rating to BBB and left it two notches from junk, citing the cost of recapitalizing the country’s banking industry and a lengthening recession. Further uncertainty about Greece exiting the euro zone has added woes to the investors’ sentiments. The clarity on Greece exiting the euro zone may only come post the election results expected on June 17.
Meanwhile, the other Asian markets like Nikkei closed in the positive territory as China surprisingly went for a rate cut by 25 bps to keep up the pace of the economy. The slashing of the rate was the first time in a long period of four years which signifies that China is facing a serious slowdown in its current environment.
Back home, all the BSE sectoral indices closed with significant gains. Among the major gainers, capital goods’ indices closed higher by 11 per cent on the hope of a rate cut and the government’s thrust on boosting the infrastructure sector. The other indices like auto, Bankex, power and PSU also closed higher in the range of 6 to 7.76 per cent on the hope of a rate cut by the RBI in its upcoming policy meet scheduled for June 18, 2012. On the other hand, with the rupee’s depreciation helping the IT companies, this resulted in the IT Index climbing higher by 1.17 per cent. The consumer durables’ index was the only one to slide this week as it ended the week down by 2 per cent.
| Sectoral Indices | |||
|---|---|---|---|
| Category/Index | 1-Jun-12 | 8-Jun-12 | % Change |
| Broad | |||
| MIDCAP | 5,821.63 | 5,988.21 | 2.86 |
| SMLCAP | 6,194.44 | 6,326.14 | 2.13 |
| BSE-100 | 4,856.04 | 5,073.30 | 4.47 |
| BSE-200 | 1,969.54 | 2,053.81 | 4.28 |
| BSE-500 | 6,177.22 | 6,429.05 | 4.08 |
| Sectors | |||
| AUTO | 8,680.30 | 9,192.24 | 5.90 |
| BANKEX | 10,684.62 | 11,513.80 | 7.76 |
| CD | 6,155.76 | 6,031.83 | -2.01 |
| CG | 8,553.10 | 9,485.64 | 10.90 |
| FMCG | 4,591.16 | 4,680.77 | 1.95 |
| HC | 6,556.96 | 6,634.98 | 1.19 |
| IT | 5,552.27 | 5,617.05 | 1.17 |
| METAL | 9,934.86 | 10,308.14 | 3.76 |
| OIL&GAS | 7,427.61 | 7,780.76 | 4.75 |
| POWER | 1,768.73 | 1,877.07 | 6.13 |
| PSU | 6,664.36 | 6,921.76 | 3.86 |
| REALTY | 1,552.70 | 1,650.86 | 6.32 |
| TECk | 3,217.23 | 3,266.54 | 1.53 |
Among the individual stocks, Pantaloon was the biggest index gainer, moving up by 20.31 per cent to Rs 224.5 after reports that the Future Group had decided to sell its stake of 54 per cent in Future Capital Holdings. The sale will be conducted in two tranches. In the first tranche the company will sell 40 per cent followed by an open offer of 26 per cent by private equity investor Warburg Pincus at a price of Rs 162 a share. This will help the Future Group to fetch an equity value of Rs 1,050 crore and help reduce its debt burden.
| Top Gainers/Losers | |||||
|---|---|---|---|---|---|
| Gainers | CMP | % Change (WoW) | Losers | CMP | % Change (WoW) |
| Pantaloon | 167.05 | 20.31 | Guj Gas Co | 298.5 | -10.51 |
| REL | 501.9 | 16.60 | Indrapra G | 225.85 | -9.42 |
| L&T | 1309.05 | 15.39 | GSPL | 65.7 | -6.81 |
| HDIL | 72.8 | 14.38 | Adani Ente | 227.35 | -5.23 |
| IB Real Es | 58.2 | 14.12 | NeyveliLig | 81.35 | -4.57 |
| RelinceCap | 339.75 | 13.86 | UltraTechC | 1399 | -4.00 |
| Sun TV | 257.65 | 13.65 | Titan Inds | 213 | -3.86 |
| Uco Bank | 76.85 | 12.85 | EicherMoto | 2176 | -3.68 |
| JSW Energy | 47.1 | 12.01 | MphasiS | 354.7 | -3.57 |
| TTK Presti | 3007.35 | 11.05 | ColgatePal | 1144.95 | -3.18 |
Most of the infrastructure companies closed with significant gains this week on the back of the government’s measure to boost infrastructure in the economy. Reliance Infrastructure (REL) and L&T jumped higher by 16 per cent and 15 per cent respectively. On the other hand, there were a few losers, among which Gujarat Gas and Indraprastha Gas closed the week lower by 10 per cent and 9 per cent respectively while companies like Neyveli Lignite, Ultratech Cement, Titan, etc closed with losses in the range of 3.86 per cent to 4.57 per cent.
In conclusion, we expect the market to trade sideways for the next week as eyes will be on major events such as IIP numbers and the RBI policy meet, which will decide the direction thereon. We advise investors to remain cautious and adopt a ‘wait and watch’ approach.
| Volumes (Rs.cr) | ||
|---|---|---|
| Date | BSE | NSE |
| 4-Jun-12 | 1760 | 8920 |
| 5-Jun-12 | 1820 | 8587 |
| 6-Jun-12 | 2060 | 11678 |
| 7-Jun-12 | 2177 | 10686.39 |
| Institutional Turnover | ||
|---|---|---|
| Date | FII | DII |
| 4-Jun-12 | -574.2 | 446.23 |
| 5-Jun-12 | -680 | 794.66 |
| 6-Jun-12 | 269.22 | 489.14 |
| 7-Jun-12 | 675.48 | -33.74 |
| Total | -309.5 | 1696.29 |
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