Eye on inflation
Insufficient rainfall causing widespread concern
The markets witnessed a very choppy session in the past week. In the beginning of the week, the markets opened with an upside note but at the end of the week, markets closed with a negative side. The major event was from the RBI, which announced their first quarter monetary policy on the last Tuesday of July. The central bank left the rates unchanged except for SLR, which reduced from 24 per cent to 23 per cent. RBI cut its growth forecast and gave its inflation outlook as economic conditions deteriorate. Telecom stocks were in the news too, as the cabinet was to discuss the reserve price and usage of spectrum, deferred payment options by operators and rollout obligations. The law ministry said that the government cannot impose financial penalties on mobile phone companies for entering into 3G roaming agreements. The telecom majors both Bharti and Idea are weak and the trend may continue for some more time.
The IMD department said that the El Nino pattern would reduce rain gains again in June to September. They are expecting the rains in June to September, are likely to be 85 per cent of the long period average which may not be enough to save India from its first drought in three years. There are concerns of high inflation if there is insufficient rainfall, which can keep the rupee weaker. Higher inflation may prompt the RBI to increase interest rates, which will again decelerate the economic growth of the country.
The Prime Minister Manmohan Singh has removed a ban on the transfer of government land for infrastructure projects that are developed in partnership with the private sector. This is different from the earlier policy which required every policy of land transfer by the government for development of infrastructure like ports, roads, railway stations or airports get cabinet approval which may take a time period of six months.
India’s exports contracted for the second consecutive month in June by 5.45 per cent, year-on-year basis to $25 billion on the back of growing economic uncertainties in Western countries. Trade Deficit stood at $ 40 billion. Oil and non-oil imports during June declined by 4.435 and 17.08 per cent to $ 12.68 billion and $ 22.68 billion respectively.
PM Manmohan Singh expanded the terms of reference of the GAAR committee by referring the issues relating to taxation of FIIs and portfolio investors with a view to provide more clarity for them. He is also looking into the applicability of the tax avoidance rules on the past deals cut by them. An India-Mauritius panel will discuss a series of proposals to review the double taxation avoidance treaty between two nations on August 22-24 in Mauritius.
Corporate results for the first quarter were mixed in nature. Mid cap stocks like Mahindra Satyam, Kale consultants, CMC etc came with good set of numbers. On the pharma front, Glenmark Pharma, Cipla and Dishman Pharma and others also showed firm numbers.
The Rupee is weak and has immediate support at 56.17 and 56.85 against the dollar. The Rupee may face resistance at 55.5247 and 55. Precious metal gold may remain in a tight range of $1574 and $1557. Gold has resistance at $1599 and $1623. We can expect subdued trends in the early part of this week.
On the international front, the markets began positively on the news that ECB and FED will join their hands to save the debt-ridden Euro Zone. They also said they will only act after the governments act. The Chinese HSBC services purchasing managers index came out, which rose to 53.1 in July from 52.3 in June, reflecting a rise of new orders.
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).
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