Month Ending Optimistic for the Stock Markets

Month end was quite optimistic for the Indian stock markets. The stock markets opened lower and hence traded with a positive bias for the initial trading session, to close higher by 1.96%. All NSE India & BSE India sectors performed well where Infra sector specifically Reliance Infra & Realty sector specifically JPAssociates performed the best. Amongst all NSE & BSE frontliners, only Ambuja Cements traded against the stock markets. The second day opened on a positive note, witnessed some selling pressure in the initial half of the session, but was recovered to close higher by 0.56%. Amongst all NSE India & BSE India sectors, Media Sector played the best and amongst stocks; Grasim, ONGC, DLF & Sterlite lead the move. Bhartiartl & Bank Of Baroda traded with a negative bias. Third day was positive but did not show much momentum for the entire session. Only the Pharma sector specifically Cipla could beat the nifty, others were flat. Coalindia, ONGC, Sesagoa traded against the stock markets. Fourth day was lethargic with all NSE & BSE sectors closing on a flat note. NTPC performed the best and cairn, Tatamotors played the worst. The last day opened on a negative note and was dragged down in the initial half of the session due to the poor performances of the Media & Metal sectors, but was again pulled upwards to close flat. Only Asianpaints closed exceptionally positive.

RBI was expected to announce the monetary policy with not much change in the CRR and other policy rates. Indian economy is suffering from stagflation where the economy is slowing down and at the same time prices are consistently rising. Hence taking any major action can lead us to some extreme reactions. Thereby the first quarter policy was announced with no changes in the rates and only change in the SLR from 22 to 23%. RBI assures to bring down current account deficit by March 2013.

The major culprits are the low monsoon which might lead to a deficit of 21% that can affect the production of kharif crops & high fiscal deficit. Hence, RBI does not see FY 13 growth rate to close higher than 6.5% where it was predicted earlier at 7.2%. A higher Dollar demand for oil, fuel and gold has given rise to rupee depreciation which is one of the major reasons for slowdown in economy. According to analysts if the subsidies on fuel and fertilizers are decreased and the same amount is invested in food production, it would help to relax the food inflation problem to some extent. Moreover, rising fuel prices would lower the demand and the same liquidity can be invested in other activities of the nation.

To add to it, India exports have also contracted to USD 25 million. However, imports too decreased to 35 million dollars, narrowing the trade deficit gap. An attempt to increase foreign capital in the country is made wherein Government last week announced allowance of FDI from Pakistan. Pakistani citizen will be allowed to make investments in Indian entities other than Defence and allied sectors.

Last week witnessed another shock for the economy due to the sudden power cuts in the northeast region of the country. This reveals the poor infrastructural facilities in the country according to the rating agency Moody.

What next…..

The country’s economic situation is so dampened that the Government is still not able to decide who deserves to grip the Finance Ministry. Before Manmohan Singh could start with his tenure, the post was grabbed by P Chidambaram. P Chidambaram took the charge as the FM and as an immediate effect to that worked on the last weekend to decide upon immediate actions to be taken from the growth perspective.

Now that the stock market has opened lower and was positive for the entire week, we expect some more upside momentum in the nifty. The immediate resistance for the nifty would be at 5260 levels if it manages to close above 5240 levels. The next target for the nifty would be at 5350 levels. The oscillators have given a positive crossover, so we can expect a continuation of impulsive move in the nifty or to that matter a consolidation.

However, the impulse has just started and so it might as well act as a breather. The next immediate trendline support is at 5090 levels and if it gives the breakdown then we can expect 5030 levels downside.