Last week witnessed smart buying but global cues and higher level selling made markets erase gains
In the beginning of last week, the Indian markets were better on the back of FII inflows and smart buying witnessed in the midcap and smallcap stocks. But higher level selling, global cues and S&P expressing concerns on domestic growth made the markets erase its gains. The markets this week closed with a weekly loss of around 2.5 per cent each.
Nifty started trading below its key support 6280 and 6212 and may try to test 6080 immediately, if it fails to get support at these level then we can expect further sell off which can bring down Nifty towards 6000 -5960 level in the near term.
The services PMI data for the month October which came out last week, saw a moderate recovery from a four and a half year low in the previous month. The HSBC Markit purchasing Managers Index data stood at 47.1 as compared to 44.6 in September which remained the fourth successive monthly contraction. Index value of below 50 levels indicates contraction. Reasons were cited as the decrease in new business flows. Services sector growth fell to 6.1 per cent in the first quarter of the current fiscal against 7.5 per cent in the corresponding quarter in 2012-13.
In the move to support the banking system, the Reserve Bank of India (RBI) last week permitted Wholly Owned Subsidiary (WOS) of foreign banks to acquire domestic private sector, as well as setting up branches anywhere in the country. The central bank also allowed the foreign bank subsidiary to list on the local stock exchanges. But the foreign bank subsidiary will not be allowed to hold more than 74 per cent, the sectoral cap for overall foreign investment, in the private banks they may acquire.
At the same time for saving the Indian banking system dominated by the foreign banks, certain measures are taken. When capital and reserves of all foreign banks in India exceeds 20 per cent of the capital and reserves of the entire banking system, the RBI will stop further entry of new WOSs or capital infusion. The initial minimum paid up voting equity capital or net worth for WOS of foreign banks would be Rs 500 crore.
Last week, the telecom commission proposed raising of the reserve prices for the spectrum auction, recommending a 15 per cent increase on the pan-India 1800 MHz spectrum as earlier proposed by the regulator TRAI and 25 per cent rise for 900 MHz band in Delhi, Mumbai and Kolkata. The telecom commission also cleared the much-awaited merger and acquisitions policy for the telecom sector and hiked the market share ceiling for a merged entity, from 35 per cent to 50 per cent. It also allowed a merged entity to hold two blocks of 3G spectrum, thus doing away with the need to surrender the lucrative airwaves post-merger. The recommendations of the panel are now moved to the Empowered Group of Ministers (EGoM) headed by the Finance Minister.
Last week, the US markets mainly remained in flat to negative mood, chiefly on concerns regarding the timeline for the Federal Reserve to start reducing its stimulus plan. The US economy grew 2.8 per cent in the third quarter and the services index data also rose to 55.4 in October as compared to 54.4 in the previous month. In its meeting, the European central bank cut its interest rates by a quarter percentage point, to a record low of 0.25 per cent, after a slump in inflation. On the Chinese front, the trade balance data was better; exports rose by 5.5 per cent and imports by 7.6 per cent on a yearly basis.
For Indian markets, corporate earnings will remain a major trigger to be watched. Also economic data like Balance of Trade, CPI based inflation, Manufacturing and Industrial production data and WPI based inflation data is expected to come out next week. Gold is also weak and it is likely to test $1302 and $1285. Resistance for gold is at $1325 and $1335. Investors with short term perspective can buy Thermax and Apollo Hospitals.
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 firstname.lastname@example.org. 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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