Busy Week Ends With Euphoria On The Street

A very busy week on D-Street has come to a sweet end. The Sensex closed up by 1.56% while Nifty closed the week up 2.03%. The week saw some key and major events and news flows like the RBI monetary meet, announcement of CPI data, the Bharat Bandh, high political drama and towards the end, some more news of reforms arising from the government, which helped the markets end positive.

All in all, the week could be termed as a euphoric one on D-Street. There were four days of trading, as the markets were shut on Wednesday, Sept 19, to mark Ganesh Chaturthi. It seems that 'Vighnaharta' has removed the obstacles hovering above the Indian economy, and it looks probable that we will soon be on the growth track.

The week started on positive note after the policy paralysis was put to an end by the government last week. The government had hiked diesel price, cleared much-awaited reforms like FDI in multi-brand retail, aviation, broadcast and stake sale in 4 PSUs, all of which fueled positive sentiments on Monday's opening. Last Friday, the markets had closed higher by more than 2% after the US Fed’s Chairman gave a green signal to the third round of Quantitative Easing.

On Monday, we had the RBI's monetary meet which slashed the Cash Reserve Ratio (CRR) by 25 basis points to 4.5% and left the key repo rate and reverse repo rate unchanged at 8% and 7% respectively. The reduction of 25 basis points in CRR will fuel additional liquidity of around Rs 17000 crore into the system. The reduction in CRR was a favourable move for banks, and the banking stocks rallied, helping the broader indices to move to the next level.

On Tuesday, the Consumer Price Index (CPI) for Aug 2012 came in at 10.03%, increasing by 17 basis points on a MoM basis. The number was on the lower side as the street had expected it to be around 10.5%. This was after the WPI for Aug increased by 68 basis points to 7.55% on a MoM basis.

The markets was shut on Wednesday, and Thursday saw some high political drama. Political parties across India sought a 'Bharat Bandh' in response to the fuel price hike and clearing of FDI in multi-brand retail. According to media reports, Confederation of Indian Industries (CII) estimated an approximate loss of Rs 12500 crore on account of the bandh.

On Friday, it was reported that the UPA may go ahead with additional FDI measures. According to reports, the Union Cabinet is likely to approve raising the FDI limit in the insurance sector from 26% to 49%. The issue is expected to come up in the next meeting. Further, the Economic Times reported that the Samajwadi Party Chief Mulayam Singh Yadav has laid to rest fears of a mid-term election by publicly saying that his party will continue to provide external support to the UPA government. Both these developments helped the markets to move strongly northwards, helping them to close more than 2% in today’s trade.

Most of the global market moved slightly on either side and did not see the kind of volatility that was seen in the Indian markets. The US markets, Dow Jones and Nasdaq, closed higher by 0.42% and 0.63% respectively, while S&P 500 remained unchanged at the 1460 levels. The initial jobless claims dropped by 3,000 to 382,000 in the week ended Sept 15, 2012, which was lower than expectations, but the average of new claims over the past month rose by 2,000 to 377,750 which is at the peak since June.

The Euro markets also closed in the green. Major indices like FTSE, CAC and DAX closed higher in the range of 0.2%-1.1%. This is despite the fact that HSBC preliminary composite euro-zone PMI for Sept dropped to 45.9 against 46.3 in August. This is the lowest reading since mid-2009, and has raised concerns over the Euro zone situation.

Other Asian markets, ended with mixed results. Hang Seng closed in the positive territory. However, the Shanghai market plunged almost 4.5% this week after HSBC’s preliminary reading of the Chinese manufacturing PMI suggested output at 47.0, which is lowest rate in 10 months. The Japanese Nikkei closed marginally lower. The economy saw two major events; Bank of Japan announcing some stimulus measures and the country’s August month trade deficit coming in slightly wider than expected after exports dropped more than the imports.

Back home, the reformist measures and speculations that the growth in economy is expected to be soon back helped the Realty and Bankex Index to surge higher by almost 9% and 7% respectively. This is because these sectors are highly correlated with the economic situation in the country. Other indices like Capital Goods, Power and Auto also closed in gains.

IT was the highest-losing index, closing 3.56% down during the week. The government's nod to FDI in various sectors coupled with the FII investment of around Rs 6671 crore helped the rupee to appreciate against the dollar, which is not good for the IT space. The rupee fell almost 2.5% to 53.38/dollar for the week. Markets participants also shifted their focus to aggressive bets, which resulted the defensive indices like FMCG and Healthcare to close down by 2.06% and 2.18% respectively.

The aforementioned trend is clear even when we look at the stock-specific movement. 5 of the 10 top gainers consist of banking names. Canara Bank, Oriental Bank, Union Bank, Central Bank and Andhra Bank all moved higher in the range of 19%-26%. The RBI's move of slashing the CRR by 25 basis points is expected to benefit the public sector banks. Other stocks like Lanco Infra, RComm, IFCI, HDIL and IRB Infra also moved strongly higher.

On the other hand, IT saw some pressure, and scrips like Hexaware and TCS moved lower 8.61% and 7.7% respectively. Healthcare stocks like Dr Reddy’s Labs, AstraZenca and Cadila Healthcare moved lower in the range of 4%-6%. Other stocks like GSK Consumer Healthcare and Colgate also moved lower by 4.75% and 4.43% respectively.

We expect the markets to remain volatile on account of the Cabinet meeting scheduled on Tuesday as well as the September series expiry due on Sept 27, 2012. These events could keep the markets on their toes. On the global front, the US Q2 GDP data and the September month Consumer Confidence data would be due next week. Further, any movement in the Euro zone would have an impact on the Indian markets.