A Temporary Blip After The Strong Rally

The last week remained a bit volatile as far as the trades are concerned on the domestic as well as the global front. The Indian markets for this week ended in red with both the Sensex and Nifty closing on a negative note. The Sensex and Nifty went down by 1.39 per cent and 1.23 per cent respectively in the last one week. Some concerns have emanated as in September the trade deficit widened to USD 18 billion, which is much higher than its normal range. This is largely on account of a jump in imports, both oil and non‐oil.

On the domestic front, the market participants were looking forward for the result season to flag off with Infosys this morning. The results have not gone well with the market since soon after the announcement, when the markets opened, the stock touched an intraday low of 9.26 per cent, dragging the markets lower right from the start. The street expectations lay at a 2.5-3 per cent growth in the topline and as such the results have been in line with the expectations. However, what dragged the sentiment lower was yet another guidance revision. The disappointment factor was that Infosys maintained its earlier guidance regardless of its Lodestone acquisition.

Infosys later clarified that this would be factored in and adjusted for in Q3FY13. Today we also saw the IIP (Index of Industrial Production) coming out for the month of August 2012. The IIP stood at 2.70 per cent and has surprised on the positive side but a lot can be attributed to a low base effect. The index during the period April-August 2012 stands flat at 0.40 per cent as compared to 5.6 per cent in the same period last year.

On the global front, all the markets viz. the U.S., European Union and the Asian region witnessed mixed performance, but more inclined towards the negative territory. A sharper than expected drop in the U.S. jobless claims data has infused some positive vibes into the stocks in the American as well as the European region. The attention will remain on the U.S. on Friday with JP Morgan and Wells Fargo Bank poised to kick off the earnings season for the banks. Overall, the earnings’ results have so far been lacklustre.

On the Asian front, the markets fell following a downgrade on Spanish debt. However, earlier this week the Central Bank of China pumped a load of cash into the banking system for the second time in two weeks. This was to the tune of 265 billion yuan or USD 42.14 billion. Going forward, the Q3 GDP of China is expected on October 18.

Last week the INR depreciated as compared to other currencies across the world, which can be attributed to the rising deficit and an increase in the oil prices.

Crude moved up sharply last week by more than 3.23 per cent. Gold went up by more than 1 per cent and some more appreciation cannot be ruled out with the festive season inching closer. However, silver witnessed a decline of more than 1 per cent in the last week.

On the broader market front all the indices ended the week in red. The mid-cap and small-cap indices closed the week in red. On the sectoral front, out of the 13 indices, nine closed the week in the negative territory. With some volatile movement across the markets, the safe havens BSE FMCG Index and the BSE HC Index were the leading gainers for the week with a positive attribute of nearly 2 per cent. The major drag has been the BSE Realty Index that went down by 4 per cent. This has been followed by the BSE Oil & Gas Index and the BSE IT Index that went down by 3.49 per cent and 3.08 per cent respectively. The Infosys’ results and the DLF fiasco have played spoilsport for the indices.

There is a lot of optimism in the market at this juncture and we can say that this sentiment is not likely to see any change in the near future. Although the Infosys’ numbers disappointed the markets a bit, HDFC Bank, which also came out with its quarterly numbers, has delivered a robust set of numbers. Its bottomline witnessed a growth of 30.10 per cent on a YoY basis. The next fortnight will see some important data to be released, including the WPI on October 15 and China’s Q3 GDP on October 18.

The money inflows remained strong with the FIIs pumping in Rs 7,384 crore during the week in equities. The DIIs ended the week in red, selling off equities worth Rs 1,181 crore in the last fortnight. Going forward the Q2FY13 results and the reforms process will define the path of the markets. We still remain positive on the markets and some smart rallies in the near future cannot be ruled out.