A new government coming to power in India, has translated into good things on Dalal Street
Last week, tracking global cues and strong buying by both retail and foreign buyers made the markets hit another record high. But profit booking didn't allow the markets to surpass more highs. Nifty closed at 7542 down around 0.54 per cent. The immediate support levels for the Nifty are 7462 and 7412. Movements below these levels can cause further sell-off, and Nifty may find support at 7100 levels. Nifty has resistance at 7658 and 7700.
Overseas investors have pumped in a staggering Rs 1 lakh crore into the Indian equities market since the beginning of the year, on the hope that the new government may give way to more reforms. As per SEBI, the net investments by FIIs into the Indian equity markets stood at Rs 51433 crore in the current year while the same for the debt markets was at Rs 52115 crore taking a total to R 103548 crore ($17 billion).
For the first week of June alone, the net investments stood at Rs 11625 crore. From January to December 2013, foreign investors made a net investment of Rs 62288 crore into the securities markets, which included a net investment of Rs 1.13 lakh crore in equities and pulled out a net amount of Rs 50848 crore.
India's trade deficit was widened in May because of rise in imports. It stood at $11.23 billion from $10.1 billion on a monthly basis. Trade deficit is the difference between earnings from exports and outflow on account of imports was lower than $19.37 billion in May 2013. Imports rose 12.4 per cent on a yearly basis to $28 billion and it was its double digit growth first time since September 2011.
The engineering exports grew 23 per cent to 6.11 billion where as petroleum exports rose 28.7 per cent to $5.9 billion. Gems and jewellery exports jumped 1.36 per cent to $3.43 billion in May over a year on year basis. The gold imports saw a fall of 72 per cent to $2.19 billion since May 2013, but was higher than $1.76 billion in April.
The consumer price index came to a three month low in May on the back of subdued prices of vegetables, dairy products and cereals. The CPI data for May stood at 8.28 per cent against 8.59 per cent in April. The data was 8.03 per cent in February and 8.31 per cent in March.
Food inflation also fell slightly to 9.56 per cent in the month under review as compared to 9.66 per cent in April. During the period, vegetable prices fell by 15.27 per cent against 17.5 per cent in the previous month, whereas cereal prices remained at 8.81 per cent against 9.67 per cent.
On the global front, strong US job data added confidence to the markets. Also, Chinese trade data was upbeat. But news that World Bank reduced global growth forecast made markets trade lower.
World Bank, in its global economic prospects report lowered its forecast for developing countries to 4.8 per cent from the January 2014 estimate of 5.3 per cent. Also, the Iraq concerns added fuel to the fire. All other markets were simply tracking the footsteps of the US.
Crude is positive and is likely to test $106.42 in the short term, due to over bought situation, after the correction may re-rebound towards $108.75. Banking, metal, cement and capital good sectors are weak and more selling can be expected in the coming days.
Tata Steel, SBI, ICICI Bank, NMDC, Hindalco, PNB and BHEL are weak and investors can buy put options of these stocks. For this week, WPI inflation data will be the major event for the Indian markets.
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 email@example.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).