Taking a hike

After a smart rally for three days last week, Friday witnessed a heavy sell-off in markets, on the back of speculation that the US Federal Reserve may start reducing its stimulus plan. Worse was the news of Moodys downgrade of financial strength rating, and baseline credit assessments of three PSU banks, including affirming one, which includes Canara Bank, Union Bank, Bank of Baroda and PNB respectively. The rupee’s sharp dip was another reason. Nifty closed at 5507 down around 4.08 per cent on daily basis and down 1.04 per cent on weekly basis.

In order to reduce the widening current account deficit, the government last week raised the import duty on precious metals. The import duty on gold and platinum was hiked to 10 per cent, from 8 per cent and on the silver the import duty was hiked to 10 per cent, from 6 per cent. The customs duty was raised to 8 per cent, from 6 per cent on gold dore and to 7 per cent from 3 per cent, in the case of silver dore bars.

Excise duty for domestically produced gold was raised to 9 per cent from 7 per cent and for silver, it was raised to 8 per cent from 4 per cent. This year, this is third time the government has hiked the import duty on gold. In January, it was hiked to 6 per cent from 4 per cent. It again increased by 8 per cent in June.

On the back of expense cut and increase in operating income, Srei Infrastructure posted an increase of 17.1 per cent in the net profit. The net profit of the company stood at R 47.22 crore for the quarter, which ended on June 30, 2013, as compared to R 17.42 crore in the same period last year. The consolidated net income of the company rose, by 3 per cent to R 786.67 crore in the quarter under review, as against R 761.68 crore in the previous fiscal.

The Industrial production data fell to a second straight month, on the back of poor performance in manufacturing and mining sectors. The fall in the power and capital goods production helped the IIP data decline. The industrial data for the month June contracted to, 2.2 per cent from 2.82 per cent in the previous month. The IIP data for May was revised downwards to a decline of 2.82 per cent, from a dip of 1.6 per cent.

The wholesale price index based on inflation rose to a four-month high of 5.79 per cent in July, as against 4.86 per cent in the previous month on the back of higher food prices and costlier imports. The data stood at 7.52 per cent in July, 2012. Inflation in vegetables soared to 46.59 per cent in July, versus 16.42 per cent in the previous month. Food inflation rose to 11.91 per cent against 9.74 per cent over the period, and inflation in fuel and power rose to 11.31 per cent against 7.12 per cent over the period. July core inflation stood at 2.4 per cent, as compared to 2 per cent in the previous month.

On the global front, the markets were trading lower on the back, as improving US economic growth, may result in the Federal Reserve curbing its stimulus programme, soon next month. In the beginning of last week, the Japanese markets were up on the news that the prime minister is considering cutting corporate tax in order to support business investment. But the downtrend in the US markets was tracked by the Asian peers, coming towards the end, of last week.

Domestic currency is weak and has tested 62 levels against the dollar on intra day basis, and may hit 62.2121 or 62.50 in the short term. Gold is firm, and is likely to test at $1375; if it breaches this level and closes above for more than two days, we can expect further resumption of an uptrend. On the other hand if it falls below $1345, then it may test at $1320. Tata Motors, HCL Tech, Dr. Reddy, SUN Pharma are the few counters which can move up, in a firm market.

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 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.  

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