Cause for concern

Jan 11, 2016, 09:01 IST | Alex K Mathews

China’s troubles saw new lows globally, though there was some redemption with a rebound end of last week

The markets, last week, remained under pressure on the back of weak global cues. The disappointing data, along with falling oil prices to multi-year lows, added to the concerns.

The Nifty has immediate support at 7540 and 7371. Resistance for the Nifty lies at 7790 and 8000. Investors should take appropriate strategies during these days and they can buy Nifty 7500 put options and can sell 7300 put options.

Foreign investors parked about $7.4 billion in the Indian debt markets in 2015 after having made a huge investment of $26 billion in the previous year. They also invested Rs 17,806 crore ($3.2 billion) in the equities market last year. The reasons cited were the slowdown in China, and concerns of an imminent rate hike by the US Fed.

In 2013, Foreign Portfolio Investors pulled out around Rs 51,000 crore ($8 billion) and in 2012 they invested around Rs 35,000 crore.

Core data
Adding to the concerns of the country’s economic growth, the manufacturing sector’s activity has contracted for the first time in more than two years. India’s manufacturing PMI fell to 49.1 in December, compared to 50.3 in November.

On the other hand, the services PMI that came out last week, rose to its fastest pace in ten months in December. The Nikkei/Markit PMI surged to 53.6 in December from 50.1 in the previous month. The new business sub-index rose to 53.8 in December, from 51 in November.

For November, the retail inflation for farm labourers and rural workers rose to 4.92 per cent and 5.02 per cent, respectively due to an increase in prices of food items. For October, the data was at 4.43 per cent and 4.66 per cent, respectively. The food inflation for the sectors was at 4.79 per cent and 5.15 per cent, respectively for November 2015.

Global cues
On growing concerns over the globe, the World Bank cut its global growth forecasts for the third straight year. While the institution has reduced its global growth forecast in 2016 by 0.4 per cent to 2.9 per cent, the figure remained slightly higher than in last year’s predicted growth of 2.9 per cent. The reasons cited were deeper contractions than expected in Brazil and Russia, along with weaker data from the US and Chinese economies.

The World Bank has forecasted the Chinese GDP growth to slow to 6.7 per cent in 2016 from an estimated 6.9 per cent in 2015, and the US economy’s growth was trimmed by 2.7 per cent from an earlier estimate of 2.8 per cent.

However, on the same side, it projected that India will grow by a robust 7.8 per cent in 2016 and 7.9 per cent in the next two years.

Dragon downer
The global markets were in the red zone mainly due to Chinese concerns. On the economic front, the US’ manufacturing sector shrank for the second straight month in December, and Chinese manufacturing also slipped owing to weak demand.

The huge selling on CSI index on the Chinese front made the markets suspend trading. The CSI index 300 index consists of companies listed in Shanghai and Shenzhen. The country’s currency also depreciated to its weakest point in nearly five years. Along with this, weak oil prices had its role to play. But by the end of last week, the Chinese markets rebounded as the market regulator relaxed the circuit breaker mechanism, and the People’s Bank of China (PBOC) raised its guidance for the currency. For the US markets this week, data like initial jobless claims, retail sales, core PPI, industrial production, manufacturing production, business inventories and consumer sentiment will be in focus. In the Euro zone area, industrial production and balance of trade will the core data.

On the economic front this week for Indian markets, the main triggers are industrial production, manufacturing, inflation and balance of trade data.

Crude is weak and it is likely to test $32.10 per barrel, and has resistance at $35.98.

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