Into the Red

Jun 04, 2012, 09:37 IST | Alex K Mathews

The markets had opened on a positive note last week, and thereafter moved up in the initial days but could not sustain at higher levels, and slipped into the red towards the end of the days

The markets had opened on a positive note last week, and thereafter moved up in the initial days but could not sustain at higher levels, and slipped into the red towards the end of the days. The May F&O expiry happened with very low rollover of just about 56 per cent showing that investors were not that optimistic about the outlook of the market in June.

The Nifty has remained in a range of about 200 points for half of the month as weak GDP numbers, falling manufacturing data in India and European nations, concerns over Greek exit from Euro after the election scheduled on June 17, slowing growth in China, the uprising becoming too bloody in Syria etc kept the sentiment down. Also, the slow down growth in US and China affected the metal prices along with crude. We saw crude prices falling from around $91 levels to $86 levels this week.

The Government is fighting macro factors like inflation, fiscal deficit, failure in implementing parliamentary decisions due to political reasons, back to back scam allegations, fuel price hike etc. The Rupee continued to fall last week, also to record a low once again on European concerns and a slowing economy. India's economy grew at a dismal rate of 5.3 per cent in the quarter ended March 2012, against 6.1 per cent in Q3. GDP growth for the full year was 6.5 per cent, the slowest pace in three years.

The farm sector, which is the single largest employer in the country but one of the lowest contributors to absolute GDP, grew at 1.7 per cent against 7.5 per cent in the corresponding period last fiscal. But the industrial and services sectors came in lower than expected, at 1.9 and 7.9 per cent against 7 and 10.6 per cent in the year-ago period. India's infrastructure sector output grew 2.2 percent in April from a year earlier, in line with the upwardly revised annual growth of 2.2 percent in the previous month.

The Government is moving fast in implementing certain decisions to allow funds to come in and make India more attractive for investment. If Greece exits the Euro, more funds will be pulled out of other troubled euro nations and may see their way to emerging economies. Last week, the Government said it has cleared 25 foreign direct investment proposals, including that of AIF III of Mauritius and Mumbai based Microqual techno, worth Rs 2,973.40 crore. In its desperate attempt to cut the fiscal deficit, the Govt has announced certain austerity measures last week. The measures include a 10 per cent cut in non-plan expenditure for 2012/13.

The country's non-plan expenditure for 2012/13 is estimated at Rs 970000 crore. However the Ministry of Finance said that the cuts exclude interest payment, debt repayment, defence capital, salaries, pensions and grants to states.

Europe is on the brink of a decisive move as far as the equity markets are concerned. Early in the week, there were reports showing that the New Democracy Party which supports the plan negotiated with international lenders, placed first in all six opinion polls published on May 26, as campaigning continued for next month's general election. The party led by a margin of as much as 5.7 percentage points over Syriza, the main party opposed to implementing the terms of financial aid.

The Irish went to the polls recently, to decide whether to ratify a treaty aimed at controlling the runaway deficits of EU countries. Ireland is the only country to put the EU plan to a public vote. Irish constitutional law requires public approval for major reforms.

Germany, which supports this fiscal treaty, calls on countries to limit spending and stick to budgetary targets. It aims to coordinate EU fiscal and budget policies and hold annual structural deficits within 0.5 per cent of gross domestic product, with bailout funds from the so-called European Stability Mechanism available to those that ratify the treaty. Fines are to be imposed on those that fail to comply with debt targets.

Most of the front line stocks are weak including ICICI Bank, Maruti, HDFC, Tata Motors and Reliance Industry. Investors can sell the futures of these stocks or can buy the at-the-money put options for two holding days. Nifty roll over was around 57 per cent on last Thursday, indicating lack of conviction among the market participants on the future course of the market. The macro-economic factors too are indicative of the alarming situation of the country. More and more institutional investors are becoming net sellers. 

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