A Muted Trading Week

The Indian markets remained in the negative zone in this week. The indices consolidated a bit after reaching the 20k mark. The Sensex and the Nifty closed the week lower by 2.65% and 2.98% respectively.

The week started off on a strong note, carrying forward the movement of the previous week. The global factors helped too, as the Manufacturing Flash PMI for China came in at 51.2 for September 2013 against 50.1 in August. This was at a six-month high, indicating that the operating conditions have improved a bit this month. The data indicated that the output and new orders (including exports orders) had increased at a faster clip. The industrial output has also increased at a faster pace, as have the output prices, input prices and backlog of work.

On the other hand, the US economy was under crisis, as its debt increased to record levels in 2011. This led credit rating agency S&P to strip the USA of its AAA rating. 2011 was one of the worst years for Indian equities and no investor would like to remember it in the lifetime. The US economy is again reaching that feat, as the government is required to increase the debt ceiling limit. There are chances that the US may run out of cash in the next few weeks.

President Obama is of view that the talks of 2011 should not be duplicated and that the country should pay the bills that have already been incurred. In 2011, the negotiations were long and messy, which led to a downgrade by the rating agency. Having learned a lesson from this, President Obama is now trying a new strategy to refuse to negotiate over terms for raising the debt ceiling and leaving it is up to Congress to give government the authority to pay its bills.

On the domestic front, the government seems to have woken up and taken some positive steps. The Union Cabinet approved the methodology for auctioning coal blocks, enabling the government to allot coal mining licenses through competitive bidding for the first time. A report suggests that according to the methodology, auctioning would take place for fully explored coal blocks as well as regionally explored blocks after ascertaining the geological data.

Apart from this, the Indian government is carrying out a comprehensive review of rules governing FCCBs and depository receipts in order to align the rules with the New Companies Act and to cater to the needs of Indian companies and foreign investors. In this regard, the Finance Ministry said, "It has been decided to constitute a committee to review the scheme comprehensively, keeping in view the new Company Law and the recent legislations in the financial markets, the current state of the macro economy and the financial markets, the needs of the Indian companies and foreign investors and the need for simplification and legal clarity of the scheme". 

In commodity news, precious metals witnessed mixed movements this week, with gold gaining 0.60% and silver closing in the red, down by 3.24%. Crude oil witnessed some correction in prices this week too.

The broader markets closed the week on a mixed note. The BSE Mid-Caps closed with a loss of 0.98%, while Small-Caps closed higher by a mere 0.21%. On a sectoral basis, 9 of the 13 indices closed the week in red.

As mentioned in our commentary last week, the increase in repo rates has played spoilsport. Going forward, the markets are likely to trade on a volatile note with a negative bias.