Favourable Macro Data Gives Solace

The Indian equity indices witnessed smart move in most part of the week except for the last two days. Both the Sensex and Nifty closed the week gaining 1.89% and 1.46% respectively. Let us take a look at the factors that have played a major role for the movement of the markets in the week.

The week started off on a positive note when the Consumer Price Inflation (CPI) for the month of December 2013 has slowed down to 9.87% on a yearly basis compared to 11.6% for the month of November 2013. The factors that have helped moderation in CPI were food and beverages prices, which account for 49.71% of the total CPI and fell from 14.72% in the month of November to 12.16% for the month of December 2013. Even Fuel and light costs saw a marginal drop from 7% at the end of November to 6.98% for the month of December 2013.

Two days later on January 15, 2014, the Wholesale Price Index (WPI) for the month of December 2013 has come down to 6.16% compared to 7.52% for the month of November 2013. This is much below the consensus as well as individual expectations of economists and market intermediaries. After remaining stubbornly high (at over 7%) for the three preceding months, the lowered WPI certainly comes as a fresh lease of optimism for the markets.

Apart from the favourable macro economic data, there had been some actions on the disinvestment front from the government. In a recent development, the government has given a go ahead for 10% stake sale in Indian Oil Corporation. Also, the exchequer is slated to receive a special dividend of around Rs 17000 crore through a special dividend of Rs 29 per share declared by Coal India.

On the global front, we have also seen some positive data being released in Europe and the US. In the US the core retail sales data showed a marked improvement and stood at 0.7% as against 0.1% reported a year earlier. Also, the data on initial jobless claims too cooled off a bit to stand at 326K as against 328K reported earlier. The industrial production in the Euro Zone had shown marked improvement to stand at 3% as against 0.5% reported a year back. This clearly indicates towards the recovery phase that the economies in the Euro Zone are witnessing.

Coming back to the domestic front, we have seen some of the important results coming out this quarter. Results of companies like TCS, HCL Technologies and ITC came out well. However, the results from the banking sector are although in line with the street expectations there are still some concerns over the asset quality which still needs to be looked at closely.

On the inflows front the FIIs bought Indian equities worth Rs 80 crore this week taking the total to Rs 817 crore in 2014. On the other hand the DIIs remained sellers and during the week they sold off equities worth Rs 174 crore. In this year they have sold stocks worth Rs 795 crore.

Also, with the WPI and CPI numbers coming out on a favourable note the expectations of the market is that Dr Rajan will maintain a status quo in the upcoming third quarter review to be held on January 28, 2014. Till then, the markets will take cues from the corporate results.