Edgy Week Ends In Red, WPI Lower At 4.7%

As we had predicted in our roundup note for the past week, the Indian bourses continued to trade on a volatile note and ended the week in the red. The Sensex and the Nifty closed the week in red, declining by 1.29% and 1.23% respectively.

With the rupee tumbling, the Finance Minister has stepped in to stall the fall in the INR. He said that there are more reforms on the way to revive the economy. Among the key reforms planned, the government is set to take a call on allowing power generating companies to pass on the higher cost of imported coal to customers. The government will also revisit the sectoral FDI caps, including those in the defence sector. On the coal and gas front, Chidambaram said that the issues would be resolved by the end of June 2013. The divestment of Coal India is surely under consideration, Chidambaram said, but the company first needs to negotiate with the trade unions.

FIIs, which have started to draw money out of the country, may have something to cheer about as the SEBI would be meeting on June 25 to address the issues related with FII registration. It is likely that a new class of investors would be introduced – 'Foreign Portfolio Investor'.

Credit ratings agency Fitch also upgraded the outlook on India from negative to stable with a BBB- rating. The agency has said that it is happy with the earlier reforms introduced by Chidambaram. As to whether there will be a further upgrade in the credit rating of the country, only time will tell.

On the other hand, the Index of Industrial Production (IIP) data has disappointed the equity markets yet again. For April 2013, this has come in at 2% against an expectation of 2.6%, indicating a further fall in production. The IIP is regarded as a barometer of industrial growth, and a drop in the number is certainly worrying. The steep depreciation in the rupee may hamper growth further, as higher fuel costs would eat into the margins of businesses.

However, the inflation data as measured by the wholesale price index (WPI), which came in on Friday, June 14, stood at 4.7% for the month of May 2013 (over May, 2012) against 4.89% for April 2013 and considerably lower than that of 7.55% for May 2012. This is the fourth consecutive month that inflation has moved southward, and is at the lowest in the last 3 years. What is heartening is that it has also come below market expectations, which were in the range of 4.8%-5.2%.

Money inflows from FIIs remained weak, selling equities worth Rs 408 crore during the week. In fact, FIIs have also been constant sellers in the debt market, and have sold bonds worth more than Rs 15400 crore since May 22, 2013. DIIs ended in the red, having sold equities worth Rs 634 crore.

The RBI’s monetary policy outcome is the only trigger that the markets are eyeing. However, we believe that the markets are likely to remain subdued and may remain volatile.