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Eye on inflation

We had weekly and monthly inflation numbers last week. The inflation for the week ended October 1 eased to 9.32 per cent from 9.41 per cent previously, which could be attributed to the fall in the price of onion, potato and protein-based items. At the same time, prices moved up in the case of cereals like rice and wheat. In the case of fuel price, inflation moved to 15.1 per cent from 14.69 per cent. The inflation for the month of September came at 9.72 per cent, slightly easing from 9.78 per cent recorded in August. What matters is the fact that inspite of all the interest rate hikes and monetary tightening, inflation still remains above 9 per cent.

Recently, the RBI Governor had made it clear that, unless and until inflation eases to a comfortable level, interest rates will remain at a high. This remains a matter of concern as RBI is meeting on October 25, for their half-year review and will consider all these factors to decide upon whether to raise interest rates further or not. RBI, cracking its whip a dozen times since 2010 could reduce the money supply in the country but rise in commodity price is mainly due to international price movements and speculative activities. Nifty has breached the crucial resistance at 5000 and it is likely to test 5210 and 5270 in the short term, therefore investors can buy Nifty futures with a stop loss below 5085, or even can buy 5200 Nifty October calls.

Relief
The government on Thursday announced a Rs 900 crore relief package for exporters over and above the 2 per cent subsidy on rupee export credit for handicrafts, handloom, carpets and small and medium exporters to revive the segment in the ongoing difficult times. The new package will give relief to players in engineering goods, pharmaceuticals and chemicals, apparel etcetera. Under the scheme, an additional 1 per cent duty credit would be provided to the exporters to Latin America, Africa and CIS countries. Thailand and Vietnam are facing worst flood, which has affected their major crop -- rice. In the case of Thailand, at least 300000 tonnes of rice exports may get delayed and in the case of Vietnam, it could default on deliveries of 520000 tonnes of grain this year. This would probably prompt the buyers to look at alternatives like India and Pakistan. On the back of this, we saw tremendous buying in rice exporters like KRBL, Kohinoor and Daawat as government freed the exports recently. Another major development was the passing of the Carbon tax bill, which would now require electricity generating companies, mining companies and heavy industry manufacturers to pay $24.7 for each ton of carbon they emit. Many Indian steel and mining companies like Gujarat NRE Coke, GVK Power, SAIL, JSW Steel, Lanco Infratech, Adani Enterprise, Jindal Steel and Power etc have coal mines in Australia and this new taxing will push their cost upwards. Another thing to keep an eye on is that Indonesia is also considering an export tax on coal, which would be another blow to companies having mining interests in Indonesia.

Banking
In the banking sector, DCB reported a 176.5% jump in its Q2 profits from Rs 133.27 million for the quarter ended September 30, 2011 against Rs 48.2 million for the quarter ended September 30, 2010.  Investors can buy DCB for a medium term perspective and the stock has an immediate target of Rs 50 and medium term target of Rs 57. Economic data and steps taken on the European front, made the international scene more attractive. On the European front, industrial production in France and Italy rose above previous figures. The British IIP rose to 0.2 per cent against -0.4 per cent and the European IIP gained 1.2 per cent against 1.1 per cent. On the US front, TIPP economic optimism rose to 40.3 against 39.9. The US initial jobless claims fell to 404000 from 405000 and the US trade balance deficit narrowed to $45.6 billion against an estimated -46.1 billion. Making the global scene more attractive, US Congress passed the three trade pacts with Colombia, Panama and South Korea, expected to boost exports by $13 billion. Also the Slovakian government finally voted in favour of the Euro Zone Bailout Fund. But the US senate voted against President Obama's $447 billion Job Creation Program.

Perspective
In the cash segment, stocks like Manappuram Finance and Muthoot Finance are good for the short-term perspective, where as counters like Delta Corp and V Guard can give decent returns in the short term to medium term. The air is thick with talk that the STT may be abolished. If the STT is abolished, then it will increase iquidity in the stock market and we may see further positivity in the market. Crude is looking firm above $ 82.55 and $82.88, and it is likely to penetrate the immediate resistance at $86.70 level. Above this, crude has immediate target of $88.80. Gold has immediate resistance at $ 1692, and if it can move above this level with volumes then it can test even $1712 and $ 1756.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended. Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Disclaimer: No financial information whatsoever published anywhere in this newspaper should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is  for educational and information purposes only and under no circumstances should be used for actual trading or making investment.

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