Domestic Equities Shrug Off Global Volatility; Gold Falls 11%

The Indian markets, this week, have provided the much required breather to investors as both the Sensex and the Nifty surged by over 4%. This is for the first time after the Union Budget 2013 that the markets have moved northward in such a quantum. The expectations of another rate cut have pumped fresh air into the markets.

The world markets remained quite fragile through the week. The European markets, as expected, have borne the investors’ brunt as they moved down by 2-3%. CAC tanked by 3.10% while DAX declined by nearly 3%. UK’s FTSE index was down 1.7%.

The US indices too remained in red as the economic indicators remained weak there. All the 3 leading indices there were trading in red as the US faced another terrorist attack in Boston.

Back home in Asia, China’s GDP numbers announced during the week displayed the high growth that the country enjoyed in the last decade. However, the manufacturing and retail sales growth indicate some weakness in the economy, putting pressure on the Asian indices.

The highlight of the week, however, was a continued downward movement of the commodity markets. Gold lost its sheen as it tanked by more than 11%. Silver too remained week and fell by nearly 15%. Crude oil has fallen by more than 4% in the spot market. Crude oil futures are down by more than 5% in this week.

On the currency front, the Indian rupee has seen significant appreciation during the quarter ended March 2013. Against the dollar, it rose by 42 paise (0.76%). It has appreciated by more than 1% against the Euro and UK’s pound. The market now expects the rupee to appreciate further to Rs 53, owing to sustained pressure on leading commodities. The weak commodity markets and appreciating currency augurs well for India as it will lower the current account deficit (CAD).

In the domestic markets, after last week’s CPI data, the WPI numbers were declared. The WPI for March 2013 at 5.96 is much better than what was expected. Food inflation has also cooled down, indicating towards a possible rate from the RBI. The markets thus seem to be factoring in a 50 basis point cut at the moment. However, this has to be viewed with caution as the RBI is used to surprising the markets. A CRR cut instead of a repo cut may be in the offing.

On the sectoral front, rate sensitive sectors have shined with Bankex (up 7.5%), Realty (5.28%) and Auto (up 5.04%). Besides, the Capital Goods sector has also gone up by more than 5%. The Power sector also saw some cheers over a positive order by the CERC in case of Tata Power. The Infosys result, posted in the last week, remained negative though on the IT index. The sentiment did not improve despite TCS and HCL posting better results. BSE 100, 200 and 500 indices too showed a surge of 4%.

During the week, the shares of Unitech appreciated by 15%. Reliance Communications continues to hold its gains and saw a further appreciation in the stock by more than 14% this week. JSW Energy appreciated by 13% on the news that the a few states have further increased power tariffs.

Among the losers, Muthoot Fincorp lost 23.5% as gold prices fell drastically in the week. Shares of Infosys further weakened by 21% over its results declared last week. Wipro and TCS were also down by more than 5%.

The markets, this week, have gained mainly on the hopes that the CAD will improve as also on hopes of an aggressive rate cut by the RBI. The progress henceforth will depend on the earnings of India Inc. Investors may remain stock specific. Indices too will offer a good investment option.