Vigour and trigger

No definite global cues, coupled by the crippling floods in Chennai, resulted in a pressure cooker situation

For the Indian markets, the major trigger was the central bank’s monetary policy on the domestic and global front. Also, Parliament’s winter session gave more cues. Tracking the mixed global cues and the flood situation in Tamil Nadu, put the markets under pressure all of last week.

Going forward, we can expect marginal decline in the Nifty towards 7720-7700 levels and, thereafter, a possible bounce back is also expected. If GST gets passed in Parliament, then it will act as a catalyst to the markets and Nifty may test 8000 and more.

Mutual funds
Taking a bullish stand for banking stocks, the mutual fund managers raised their allocation to an all time high in October. According to data available from SEBI, the overall deployment of equity funds in banks stood at Rs 85376 crore in October, compared to Rs 84360 crore in the previous month.

The deployment in the said sector was at Rs 62719 crore in the same period last, and the previous high was in July where the allocation was at R 85329 crore. The second most preferred sector was IT with an exposure of Rs 41817 crore followed by pharma with an investment of Rs 34443 crore.

In the last week, the major trigger for the domestic markets was the RBI policy meet. In its monetary policy meet, the central bank kept the repo rate unchanged at 6.75 per cent. The cash reserve ratio was also left unchanged at 4 per cent.

The reverse repo stood at 5.75 per cent. It further added that the more rate cuts will be dependent on inflation and external developments, and, aims to bring down the inflation to five per cent by March 2017. RBI kept the growth projection for 2015-16 unchanged at 7.4 per cent, with a mild downside bias.

Manufacturing data
Slower increases in the new business and output made the manufacturing data fall to a 25-month low. The Nikkei Manufacturing purchasing Managers’ index declined to 50.3 in November, from 50.7 in October. The index fell for a fourth consecutive month in November. A reading above 50 shows an expansion whereas below the level shows a contraction.

The core sector growth of the country slowed to 3.2 per cent in October, from 9 per cent recorded in a year the data, the output of eight core sector industries for the April - October period was at 2.5 per cent as compared to 5.6 per cent during the same period, last financial year.

The cement sector has the biggest performance, recorded an 11.7 per cent against 1.5 per cent in September. Coal and fertilizer production stood at 6.3 per cent and 16.2 per cent against 1.9 per cent and 18.1 per cent in the previous month. The electricity and steel production slipped to 8.8 per cent and 1.2 per cent in October. The data has weightage of 38 per cent in the IIP.

On the back of pick up in investment and rise in industrial activity, the country’s economic growth jumped to 7.4 per cent in the second quarter of the current financial year. India’s growth surpassed that of China which grew by 6.9 per cent in the second quarter.

For the quarter that ended September 30, the manufacturing and electricity growth picked up by 9.3 per cent and 6.7 per cent respectively, against 7.2 per cent and 3.2 per cent in the previous quarter. The farm sector also grew 2.2 per cent compared to 1.9 per cent in the April - June quarter.

On the US front, the data remained mixed and the investors were waiting for the ECB’s monetary policy. In its meeting, the European central bank announced a deposit rate cut and the bond buying extension which was below the investors’ expectations.

The ECB said that it will extend quantitative easing by six months until at least March 2007, at the current rate of 60 billion euros a month, and, broaden the assets purchased to include local and regional debt.

The deposit rate was reduced by 10 basis points to minus 0.3 per cent. At the other end, the FED Chair expressed confidence in the US economy, and, was looking forward to a rate hike. The other major event was the adding of Chinese currency (Yuan) to IMF’s Reserve Currency Basket.

On the economic data front, initial jobless claims, consumer sentiment, retail sales and core PPI will be important data in the US markets. For Japanese markets, current account, GDP and industrial production data will be on the watch out list.

For the Indian markets current account, inflation, industrial production and manufacturing production are the major triggers. Crude is also trading very close to its key support at $39.75 per barrel and a move below this level can cause further sell off. Banking stocks are weak and are likely to test 16875 in the short term.

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.

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