Week Ends Flat, Rupee At Record Low

The Indian markets were lacklustre this week as there were no major triggers. The most-awaited mid quarter review of monetary policy has completely disappointed the investors. The markets were discounting the 25 bps repo rate cut during the last week and the case of the rate cut was built upon lower growth in industrial output and slowdown in the economy. Analysts, bankers and experts were seen admitting that lower growth in the country needed a boost through a repo rate cut by the RBI. The markets after the RBI’s stance of not resorting to the cut have fallen and the week remained volatile. 
 

The rupee during the week touched a record low amidst the negative news flow. The rupee on Thursday closed on 56.57 against the USD. Today the rupee breached Rs 57 per dollar mark, and was seen touching 57.30 against the dollar making the day to be recorded in the history books. The analysts are now expecting the rupee to move towards 58 per USD in the next few months. The RBI has ordered the oil companies to buy the half needed dollars from PSU banks in order to arrest the free fall of the national currency. 

In the global markets, the election in Greece turned out to be in favour of the markets as the democracy party got a majority of the votes and were hopeful of forming a coalition party in favour of the integrity of the European Union. However, the focus shifted to Spain which was ailing on the back of the rising bond yields that will have an impact on its borrowing cost. Meanwhile, the Fed went against the market expectation of a stimulus package. However, it has not decided to restrict itself to ‘operation twist’ which implies exchanging short-term securities for longer-term ones in order to bring down the long-term interest rates and make it easier to borrow money.

The indices shown mixed trends on the back of the positive news on Greece election. Nikkei, FTSE, DAX and CAC have shown the gains between 1.8-3% in this week. US stocks remained mixed with NASDAQ gaining marginally and Dow Jones and S&P declining marginally. Shanghai market lost heavily by 6%.

Meanwhile, investment banker JP Morgan has upgraded the Indian equities to overweight from neutral on account of the fall in the crude oil prices. The bank is overweight on private banks, IT services and healthcare but is underweight on consumer discretionary, energy and materials. The banking stocks after the RBI’s stance have come under pressure. The realty and auto stocks were under pressure too during the week. Adding fuel to the fire was the event of credit rating agency Moody downgrading eight financial institutions, including banks like SBI, BOB, etc. The credit rating agency has also lowered the outlook for India from stable to negative.

Back home, pharma and capital goods indices were top gainer indices. IT, Teck, Metal and bankex were in the red.
 

The shares of Reliance Communication were under pressure as the Canadian equity research company Veritas said that the company is entering a ‘maximum uncertainty’ phase. The research firm has also doubted its book value and has alleged that the company has made a loss of Rs 1,529 crore instead of the reported profit of Rs 882 crore in FY12.

The cement stocks displayed high volatility in the week mainly due to uncertainty over the cartelization of the cement prices. The CCI order came in on Thursday evening directing 11 cement firms to pay 50 per cent of their FY10 and FY11 profits. This amounts to a whopping amount of Rs 6,300 crore. This includes major cement firms like ACC, Ambuja and Ultratech. We believe that this will impact the profitability of the cement companies in the near term. It will also reduce the pricing power of the cement firms.

The capital goods’ stocks during the week gained as the PMO hiked import duty on foreign power equipment. Now the duties on the power equipments range between 19-21 per cent. Another good reason for the stocks to gain was that Coal India has been allocated 116 coal blocks by the government.  

Meanwhile Moody’s has also put Tata Power under its scanner for credit rating. Besides, Sensex heavyweight RIL has said that it will sell its textile business that operates under the brand name ‘Vimal’. For the next week we expect the markets to remain volatile due to the weak sentiments prevailing as of now. The key trigger for the markets is missing. Also, as per the recent data from the U.S., China and the euro zone, there evidently is contraction in their economies. The Federal Reserve has kept its bearish stance on the economy by lowering the GDP forecast from 3.5-4.2 per cent to 2.4-2.9 per cent and then to 1.9-2.4 per cent. The bearish stance has pulled down the U.S. equities and we see this as a major negative factor that may initiate a cascading effect on the global markets.