A Week Of Smart Moves

The Indian equity markets witnessed healthy moves in the week ended December 20. Both the benchmark indices gained 1.25% during the week. The domestic and overseas happenings played their respective parts in taking the markets higher. Let’s take a look at the factors that were drivers for the indices in this period.

The week started off with the WPI numbers for November 2013 coming in. This came in at 7.52% as against 7% reported during the same month last year. This increased the expectations around the RBI going ahead with the third consecutive rate hike in its monetary policy. In the preceding week, the apex bank governor has mentioned that controlling inflation is of utmost importance. Reacting to the WPI numbers, the markets took a beating on the first day of the week.

The RBI’s announcement on interest rates came in on December 18. The markets were expecting a 25 basis points hike, and some pessimists were even thinking of 50 basis points. But Dr Rajan seemed to be in a different mood altogether. He surprised the markets with an advance new year and Christmas gift, maintaining status quo on the key interest rates. Though this was a stunner for the markets, we at DSIJ were far from being surprised. In the previous week, our investment newsletter ‘Flash News’ had mentioned that the RBI Governor would hold the key rates and maintain status quo.

The RBI’s announcement came in at a crucial point, just a day before the FOMC meet of the US Federal Reserve. In its meeting, the Fed announced starting a tapering of Rs 10 billion from January 2014. This means that the US bond buying program will come down to USD 75 billion per month. The Fed has also mentioned that the rates will remain at 0.25% till the unemployment levels come to 5%.

Apart from these two major decisions by the two major central banks, many other data points emerged on the global front. Along with the US economy, that of the EU region also seems to be picking up and the data that came out from the region this week seems to support this. UK’s GDP improved to 1.9% for the third quarter of CY13 as against 1.5% on a YoY basis. Other data included that regarding the business investment, which came in at 2% on a sequential basis for Q3CY13 as against 1.4%. The data from the US was mixed.

Back home, another long-standing issue reached a conclusion, as the Cabinet Committee on Economic Affairs (CCEA) approved higher gas prices for Reliance from April 2014, albeit with some riders. This helped the stock to close the week with considerable gains. The other development was that the Cabinet has agreed to provide interest-free loans to the sugar industry. This news would help the sector, which has lost its sweetness for investors for long.

Despite the news of tapering, the foreign inflows this week remained positive. FIIs have pumped in Rs 2722 crore, and the DIIs remained in red, selling equities worth Rs 366 crore.

Going forward, though, the markets are likely to witness some drop in volumes and are expected to trade in a range keeping in mind the upcoming holiday season. Hence, the indices may witness some volatility. The next trigger for the market will be the earnings season that is to begin from the month of January 2014. Hence, it is better to tread cautiously and maintain a stock-specific approach backed by research.