The Week Ends On A Flat Note

The markets this week ended on a flat note this week. Both the Sensex and Nifty closed the week with nominal losses. However, this week we have seen some important macro data like the IIP, CPI and WPI coming out.

Retail inflation measured by Consumer Price Index (CPI) continues its downward journey and for the month of January it hit a 24 month low. CPI inflation for January came at 8.79% against 9.87% for the month of December 2013. Slowdown in food inflation at 9.9% for January compared to 12.16% in the previous month (December 2013) and fall in the vegetable prices helped retail inflation to record lower numbers. The core inflation, however, remained above 8% and there was marginal uptick remains an area of worry.

On the other hand, the Index of Industrial Production (IIP) for the month of December contracted by 0.6% on yearly basis. The contraction is lesser than what many economists were expecting of around 1%. For the period between April - December it has declined by 0.1% compared to the similar period last year. Out of total 22 industry groups tracked in the manufacturing sector eight have witnessed a decline for the month of December compared to same month of last year. In terms of use based capital goods continues to shrink and contracted by 3% for the month of January. Even consumer goods and consumer durables has contracted by 5.3% and 16.2% respectively.

The WPI data came in at 5.05% for the month of January 2014. It is well below 6.16% that we saw for the month of December 2013 and 7.31% during the corresponding period of last month. Moderation in the primary article, which has a weightage of 20.12% in the total WPI basket, has led to such fall in the headline inflation. Although CPI and WPI are showing a declining trend in the last couple of months, core inflation has remained at elevated level and not showing any signs of moderation. Core CPI inflation has remained above 8% while core WPI inflation is a around 3%.

Apart from this the newly appointed US Federal Reserve Governor Janet Yellen in her speech stated that the tapering would continue. This was again on the expected lines and has already been discounted in the markets.

The FIIs remained seller this week. On YTD basis the FIIs have sold equities worth Rs 1700 crore. The DII remained in red too selling equities worth Rs 2500 crore on YTD basis.

Going forward, the interim budget (vote on account) slated to be held on February 17, 2014. Looking at the vote on account of the railway budget, it can be said that this will also turn out to be a non-event. Hence volatility in the markets cannot be ruled out in the coming week where global factors (if any) will play a vital role.