Looking wise and wary

Jul 14, 2014, 09:26 IST | Alex K Mathews

With the RBI and IMF taking steps that are set to help economic growth, the future looks good

At the start of the week gone by, Indian markets were seen hitting new record highs on the back of strong buying seen in selected counters. Yet, it was profit booking at higher levels and a cautious approach looking ahead at the major economic data and earnings season that ruled the markets.

A man watches the share prices ticker at Dalal Street alongside a digital broadcast of Arun Jaitley delivering his Budget speech in Parliament
A man watches the share prices ticker at Dalal Street alongside a digital broadcast of Arun Jaitley delivering his Budget speech in Parliament

Nifty closed at 7459 down around 3.7 per cent on a weekly basis. Nifty has support at 7400 levels. The latest report suggests that Indian equities valuations are much higher than MSCI emerging market index, which is at around 11.1 against Nifty's 15.4 and poses concerns of a correction.

Optimism Index
A report by Dun & Bradstreet shows that the country's optimism index for the third quarter of the year rose 11 per cent, over a year. On the back of a stable government, the business optimism index which measures the pulse of the business community stood at 145.5 in the period under review.

The index takes into account six front for the index calculations in which five of them, which are volume of sales, net profits, new orders, selling prices and employee levels have increased, an increase as compared to a yearly period whereas the other parameter is inventories.

On the hopes of more reforms from the government, the overseas investors pumped around $ 20.4 billion into the Indian markets in the first half of the year. Net investments During the January to June period of 2014, the net investments by FIIs into the equity markets stood at $ 9.96 billion (R 59795 crore) while the same was at $ 10.4 billion (R 62834 crore) in debt markets, making a total of $ 20.4 billion (R 1.23 lakh crore).

Also, the country's part in overseas inflows into emerging markets since 2008 has crossed the 50 per cent mark. The figure was at $ 86 billion out of $ 1.55 trillion invested in emerging markets. After India, Taiwan and South Korea have a inflow of $ 22 billion and $ 21 billion respectively in the same period.

Economic survey
The recent economic survey tabled in the Lok Sabha pegged economic growth at 5.4 to 5.9 per cent for 2014-15 from the sub-5per cent GDP growth.

The survey, which was released a day ahead of the Union budget emphasized that in order to improve investments; the government's priority will be to improve business sentiment.

Due to the rise in net exports, the aggregate demand (measured in terms of GDP at market prices) registered a growth of 5 per cent in 2013-14 as against 4.7 per cent in 2013-13.

Improved income
In the earnings season, the major one to come out first was the IndusInd Bank, on the back of an improved income from fees and commission. The private sector bank reported a 26 per cent increase in the net profit to Rs 421.06 crore, for the quarter ended June 2014.

The fee income rose 38 per cent to Rs 486.50 crore as compared to Rs 351.6 crore, in the same period last year. The net interest income, which is the difference between the interest earned and interest expended, was up around 18 per cent at Rs 800.7 crore for the period under review from Rs 679.5 crore in the same quarter last year.

Major trigger
Weak movements were seen on the global front as the investors were cautious ahead of the earnings season. In the week, the major trigger for the US markets were the minutes from the Federal Reserve's meeting which showed that the policy makers have started to detail how the central bank will end its monetary policy.

Investors can buy IT, FMCG and Pharma mid-cap stocks, and should avoid the other small sectoral small-cap stocks for the time being. Rupee is weak against the dollar and is likely to test 60.40 in the short term. Rupee has resistance at 60.02 and 59.78. For Indian markets, economic data like WPI inflation data will be in focus.

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 alex@geojit.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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