A Week In Which Sensex Touched 20K

If one could have looked at the movements in the Indian markets a couple of weeks ago, then she would never have been optimistic of the sharp run up that we have witnessed in the last two weeks. On 28th August 2013 Sensex was hovering near the yearly lows with an almost certain possibility of midterm bear market. The entry of new RBI governor however has given a new life to the markets. Look where we were a few weeks ago and where we are at this juncture. Sensex has touched 20000 levels not once but thrice in the current week which indicates a rising confidence of the investors.

To further add some positivity, the data also showed that trade deficit of the country narrowed to USD 26.14 billion from USD 37.05 billion a year ago. Imports fell by 0.68% year on year to USD 37.05 billion. This helped Indian rupee which recovered by more than 3% during the week.

The IIP data also came positive as industrial output in the country grew by 2.6%. This was helped by the improvement in the activity in the Capital Goods. Consumer price Index also shown a fall due to the fall in the food prices.

In the commodity gold closed the week on 5% losses. Silver lost more than 6.5% as investors flocked in the equity instruments.

Globally the market sentiment remained upbeat due to the weakness shown by the US employment data. The data suggested that the employment level has increased in USA but the other set of data showed that a lot of people are employed in the part time jobs. Also it came in to the light that many people are now not looking for work which means that these people have moved out of the index taking the index lower. The global economy cheered these numbers on the hopes that Fed may revisit its plans to end / taper the ongoing USD 85 billion a month bond buying activity.

Overall, global markets turned hopeful on the poor US employment data. Shanghai markets gained by 4.5% which was the top performing markets amongst the top equity markets in the world. European markets were also up between 1-3%. US markets also gained between 1.5-2.5% indicating that the markets there have also cheered the expectations of continued liquidity in the capital markets. Sensex gained 2.4% to close on 19732 while Nifty has gained 3% to close on 5850 in the week.

This week has seen positive FII activity in the Indian equity markets. Overall FIIs have invested nearly Rs 5500 crore in the domestic equities this week. This broad based buying has seen the domestic bourses showing a steep recovery. Host of this buying has gone in the earlier beaten up sectors such as Realty, Capital Goods and Power. These three indices were up by 9%, 8% and 5% respectively indicating that investors have gone for value buying. There is also another school thought that post election next year, there will be announcements related to the infrastructure sector. This optimistism may also have led to this rally in these sectors.

India's power ministry during the week has made a proposal to mix imported and locally produced natural gas and supply it to electricity producers at a subsidized price. This plan would help boost power production which helped the sectoral players to post handsome gains in the week.

Auto stocks have managed to show good spark over the latest SIAM numbers which showed that the industry has managed to post growth in August. The numbers nevertheless are positive due to the low base impact which saw Maruti Suzuki shutting down the production same time last year due to the workers strike at its Maneser plant.

Amongst the stocks, beaten up shares such as Financial Technologies, Wockhardt and GMR Infra showed a huge buying interest during the week. Wockhardt which is having regulatory issues has also seen some ease in the investor’s sentiment as the stock has surged by 28% during the week. Amongst the other stocks, Hindustan Zinc was also in demand over the news that Vedanta plc may increase the offer price to buy the government’s stake in the company.

The market has been quite optimistic after Dr. Rajan’s entry it has moved only one direction. It however should note that new governor does not bear any magic want to transform the economy. Besides next week, Fed would be hosting another FOMC meeting which will decide the course of the Quantitative Easing. A cautiously positive outlook is what we would suggest for the next week.