Markets Close Down By Over 1% In The Week

The Indian markets remained very volatile during the week owing to the mixed cues from the domestic as well as the global markets. The Sensex as well as Nifty moved down by 1.2% each during the week. The Asian markets were also down during the week with Hang Seng and Nikkei sliding down by more than 2.2% each.

Among the other markets, the US markets have moved higher on the optimism triggered by higher employment. The week also saw US retail sales for February 2013 coming at 1.1%. The sales were better than expected and have turned economists bullish on the US economy. The European markets were also up by about 1% despite the industrial output there showing a decline of 0.4% month on month. Most countries in Europe have shown a decline in the industrial output and hence indicate that the economy in the region may take more time to show recovery.

On the domestic front, the week witnessed a host of macroeconomic data like the Index of Industrial Production (IIP), Wholesale Price Index (WPI) and Consumer Price Index (CPI). IIP for the month of January 2013 came in at 2.4% against the street’s expectations of 1% for the month. Further, the WPI numbers for the month of February 2013 came in at 6.84% which were higher than the expectation of around 6.5%. The WPI number came in higher too on account of higher fuel inflation (after the government deregulated diesel and LPG cylinder) which grew by 341 basis points to 10.47% on a MoM basis.

After looking at the all the above numbers, the market expects the RBI to cut repo rate by 25 basis points in the Monetary Policy (scheduled for March 19, 2013). With inflation showing some moderation and GDP growth at a decade low figure of 4.5% for the December 2012 quarter, a 25 basis points rate cut looks more certain.

Also, the latest media reports have hinted that dark clouds are still hovering over the economy and the rating agency S&P may downgrade its ranking on the economy further if growth does not pick up going ahead and if the government fails to cut the twin deficit targets for the current and the next fiscal.

On the indices front, only the FMCG index has managed to close the week in gains while the rest closed the week in red. Consumer Durables lost the most (by 3.7%). Metals and Auto have also lost the sheen and have turned volatile ahead of the RBI's policy meeting next week. The Auto index especially saw a sell-off due to the bearish outlook on the sector.

The Oil and Gas index lost 1.5% in the week. Montek Singh Ahluwalia (Deputy Chairman of the Planning Commission) in the week said that the CCI is in the process of clearing about 35 exploration blocks in the next two weeks which would improve the sentiment on the Oil and Gas index going ahead.

Among the stocks, RIL has received an exploration approval from the government this week for eight blocks located in KG-D6 basin. The state-owned NALCO, during the week, came with an OFS at a 10% discount to the market price which saw the shares ending the week in red.

Asian paints during the quarter put up a good performance as its promoters cleared their pledged shares. Suzlon Energy tanked more than 10% over renewed concerns on its debt restructuring as well as overall business.

In conclusion, the markets have shown volatile trades due to the absence of any positive triggers in the week. The RBI's monetary policy review is the most important event that the markets are awaiting now. Investors should note that a 25 bps rate cut seems to be discounted and if it comes, it may not have a big bearing on the markets. A 50 bps cut would lead to a rally in the markets. Anything else would turn the markets bearish again.