Week Ends 4.5% Up On Positive News Flows

The markets had a stupendous week, with the headline indices shooting up 4.5%. The Sensex has touched its 18-month high and Nifty is at its 19-month high. After a quiet start to the week, some strong positive news flows came in from the global as well as the domestic markets. There were four trading sessions as the markets were shut on Wednesday  to mark Gurunanak Jayanti.

On the domestic front, the GDP number for the September quarter of 2012 came out at 5.3%, which was almost in line with the street's expectations. The GDP number for the June quarter came in 5.5% and that for the first half of the fiscal was at 5.4% against 7.3% in the similar period last year. We, at Dalal Street Investment Journal, believe that with the growth for the first half coming at 5.4%, the overall growth for FY2013 would probably come in the range of 5.5%-6%. This means that we have seen strong headwinds in terms of growth.

The week saw two good announcements, one from the Moody’s and the other from Goldman Sachs, which further fueled the positive sentiment on D-Street. Sovereign credit rating agency Moody's said that it is retaining its outlook on India as stable at the Baa3 level. According to media reports, Goldman Sachs has said that it has strategically raised India to overweight with a 12-month target of 6600. This is due to drivers that include a recovery in growth, a decline in inflation and the potential for continued policy reforms.

Market participants speculated that the Parliament may go through FDI in multi-brand retail. This is after Parliamentary Affairs Minister Kamal Nath said that the allies of the ruling UPA government are united in wanting a discussion on the matter. Hence, one can remain hopeful of some of the pending reforms bills being passed in the coming days. A trial of strength over FDI in retail will be witnessed in Parliament next week, with the Lok Sabha deciding to have a discussion on December 4 and 5 on the issue under a rule that entails voting. Positive news flow on the same would take the markets higher, and a heavy sell-off may be seen otherwise.

The US markets closed higher during the week, with major indices like Dow Jones, S&P and Nasdaq higher by 1%-3%. During the week, President Obama affirmed that the government will most likely be able to avert the so-called fiscal cliff. Republican lawmaker John Boehner also said that there has been little progress in the last two weeks in talks to reach a US budget deal. He, however, remains optimistic about the deal which is seen positively by the markets.

The European markets too shown a sharp rally. The FTSE, CAC and DAX closed higher by 1.3%-2.3%. The region saw some relief as the debt deal to Greece was approved. The German parliament has also given its nod to this deal, which means that Greece will not default on its sovereign debt. Greece also has agreed to cut the debt levels going ahead. Further, the markets eyed the comments of President Obama on the fiscal cliff that gave them a hope that US will reach a budget deal this year itself.

In Asia, the Japanese markets outperformed its peers largely on hopes that the political changes next month will put some pressure on the country’s central bank to ease the monetary policy. The markets were also were up due to the weakened Yen as well as better trade data published today. The Chinese markets, however, remained weak mainly after the change in the political leadership failed to restore the faith in the markets. The Shanghai Composite was the only index closing lower by 2.33% at the 1980 levels.

The rupee has seen some appreciation against the dollar. This was majorly after Moody’s and Goldman Sachs came out with positive reports on the economy. Currently, the rupee is at 54.51 against the dollar.

On a stock-specific note, Suzlon Energy was among the leading gainers, higher by 28.62% at Rs 19.55 per share. The news of debt restructuring went in favour of the company. Pantaloon Retail also closed up by 15.35% at Rs 210.45. This was after market speculations that FDI in multi-brand retail will sail through the Parliament, which would be a positive trigger for the counter. Videocon Industries and GSK Consumer Products closed 25.62% and 21.25% up respectively. Stocks like Lanco Infra, Indiabulls Financial Services, Strides Arcolab and Unitech were up in the range of 13%-20%.

Hindustan Copper was among the worst performers, finishing a whopping 28% down at Rs 153.20 per share. The government divested a part of its stake last week, and fixed the floor price at Rs 155 per share. Others like Zee Telefilms and Bhushan Steel closed lower by 4.43% and 4.10% respectively. Stocks like MMTC, Havells India, Pipavav Defence and Mahindra Satyam also closed the week down almost 2%.

Finance Minister P Chidambaram's proposition in the Parliament to set up a National Investment Board (NIB) that would monitor and advise ministries on expediting projects entailing investments in excess of Rs 1,000 crore. Media reports suggest that market participants were cheered by this news.

Next week's developments would be watched closely. The political party battle for FDI in multi-brand retail will guide the the market's course. Any positive movement could take the markets to the new trading zone and vice-versa. One could see some sort of technical correction early next week as the markets seems to be in an overbought position. Next week will also see the announcement of the Manufacturing and Service PMI numbers for November 2012. We believe that the markets would be volatile next week and hence advise investors to play with caution.