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Inflation dips, so does rainfall

The weak monsoon will have a negative effect on farm output, which may in turn lead to higher prices

AT THE beginning of last week, the markets were in negative territory due to weak global cues. After that, the buying seen in the index stocks supported the markets well. But heavy sell off was seen in the mid-cap and small-cap sectors which capped a more uptrend. Nifty on Thursday closed at 7791 up around 52 points.

The markets were closed on Friday because of the Independence Day holiday.

Facts and figures
Nifty has immediate target at 7850 and 7900 levels and it has further extension at 8000 levels. Support for the Nifty lies at 7671 and 7500.

SEBI approved setting up of real estate investment trusts (REITs), a move which may open a new way of financing to the country’s property developers. REITs are listed entities that mainly invest in income producing real estate assets, where the earnings are mostly distributed to their shareholders and they generally get special tax treatment. The regulator also approved development of infrastructure investment trusts that allows developers to monetise their infrastructure assets through a stock exchange listing.

Due to lower consumer goods output, the industrial production data slowed to 3.4 per cent in June as against 5 per cent in the previous month. But the factory output data remained positive because of better show in the manufacturing, mining, power and capital goods output. The output which is measured as Index of Industrial production had contracted by 1.8 per cent in June 2013.

Food prices
Due to decline in food articles and vegetable prices, inflation dropped to a five-month low. Wholesale price index-based inflation stood at 5.19 per cent in July as compared to 5.43 per cent in the previous month and 5.84 per cent in the same month last year. The overall food articles inflation which accounts for 14 per cent of the total WPI stood at 8.43 per cent against 8.14 per cent in June. As per provisional estimates, the WPI inflation data was revised upwards for May to 6.18 per cent from 6.01 per cent.

The Indian Meteorological Department has reduced its estimates for rainfall over the country to 87 per cent of the long period average against its June forecast of 93 per cent. According to the last estimates of the weather department, there is a 46 per cent probability that rainfall would be below normal for the August-September period and 43 per cent probability of normal rains during the period. The MET department predicted a 68 per cent probability that seasonal rainfall as a whole would be deficient and 24 per cent that it would be below normal. The low rainfall will have a negative effect in the farm output which may in turn lead to higher prices.

For the quarter that ended June 30, 2014 TVS Srichakra Ltd reported more than double in the net profit. The two and three wheeler tyre maker’s net profit rose 146.9 per cent to R 17.26 crore as compared to R 6.99 crore during the April-June period of last year. The total income for the same period grew to R 451 crore from R 382.43 crore in the year ago period.

Foreign markets
On the global front, the US markets were positive thanks to the easing of tensions in Ukraine and Iraq and the investors shifted their focus towards corporate earnings and economic data. On the economic front, the weak US consumer spending made the investors think that the FED may not raise the interest rates suddenly which added cheers to the markets. The Asian markets were simply tracking the footsteps of the US markets.

Investors with short-term perspective can buy Nifty 7850 call options and can sell 8100 call options in August series.

Gold is positive above $ 1303 dollars and have short term target at $ 1318 and $ 1323 per troy ounce.

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).

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