Poised for growth
Positive global and domestic factors might just aid the market's rise
After the smart rally in the previous week Nifty opened positively due to favourable global cues and closed well above the support level of 5700 on Monday. If the macro economic global factors are positive, we can expect the rally to continue and may test 5825 – 5920 levels in the short term. Nifty has strong support at 5635. On Friday evening, India’s current account deficit data was announced and it stood at $16.55 billion for April-June quarter of the current fiscal from $21.76 billion in the preceding January–March quarter. This was due to a sharp decline in the imports as compared to the exports. The imports declined by 3.6 per cent while exports declined by 2.6 per cent in the first quarter.
The bailout package for the State Electricity Distribution Boards (Discoms) by the Cabinet was the first reform in the last week. The Cabinet Committee on Economic Affairs approved the package called Financial Restructuring of Discoms of nearly R2 lakh crore. The accumulated losses of the Discoms are estimated at R1.9 lakh crore as on March 31, 2011. According to the scheme, half of the outstanding short-term liabilities up to March 31, 2012 are to be taken over by the State governments. This was positive news for companies that financed the power projects.
Despite the reforms, rating agency Standard and Poor’s (S&P) lowered the growth forecast for India to 5.5 per cent this year, which is lower than the previous forecast. But Moody’s expressed a contrasting view; it retained its stable outlook on India, expecting the economic growth will improve on the back of consumer demand. But the agency expects that global and domestic factors could keep India’s growth below trend for the next few quarters.
A group of ministers on Thursday finalised the pricing policy, under which 348 essential drugs including anti-diabetes, pain killers, anti-invectives and anti-cancer drugs will come under price control of government, with an average price reduction of 11 per cent. The GoM recommendations will now be forwarded to the Cabinet for approval to bring drugs in National List of Essential Medicines that have total sales of around R29,000 crore, which is about 60 per cent of the domestic market.
According to the latest data of the RBI, during the April-July 2012 period, the FDI inflows dipped to $6.18 billion. It was $14.6 billion in the same period last year.
Counters like TTK Prestige and Bajaj Electricals can be bought at decline for a short-term perspective. SBI, ICICI Bank, L&T and Axis Bank are showing mixed trends; price corrections can be utilised to buy futures of these stocks. The growth rate of eight core industries is pulled down to 2.1 per cent in August from 3.8 a year ago due to declining output of crude oil, fertilisers and cement, indicating a slowing in economy. The eight core industries have a combined weightage of 37.9 per cent in the IIP.
Last week, markets around the globe were trading higher on the news of the Spanish and French measures to reduce the debt and of the Chinese stimulus package. The Chinese markets will remain closed for a week from September 30 to October 7 for the National Day Golden Week holidays, which may subdue the activities in global markets. Major events to look out for are the US Nonfarm employment data, US Initial Jobless claims, Nonfarm payrolls, Euro Interest rate decision and FOMC meeting Minutes. For the Indian markets, the corporate earnings may start unveiling around mid-October, which is a crucial time. Also for the coming days, Indian HSBC services PMI data will also be watched.
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).
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 decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at his or her risk.