Policy potential

Apr 14, 2014, 09:45 IST | Alex K Mathews

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

Nifty last week closed at 6776 up around 0.5 per cent on a weekly basis. On the lower side Nifty has last support at 6742; if it is broken then we can see Nifty falling further. Resistance for the Nifty lies at 6855. 

For measurement of inflation, The Reserve Bank of India (RBI) has adopted the new CPI (combined). The central bank has said that it will compute and release real effective Exchange ratio (REER) only on the basis of CPI from this financial year. The RBI said that REER index is constructed using a CPI for both India and trade partner countries which may ensure a higher degree of comparability of former’s international competitiveness along with trading partner countries.

RBI SETS THE PACE: The Reserve Bank of India building in Mumbai. Pic/Sameer Markande

REER indicates movements in exchange rates of the home currency against a basket of currencies of trade partner countries and is considered to be an indicator of international competitiveness. RBI recently released a monthly series on CPI based REER for both 6 currency and 36 currency baskets for the period 2004 to March 2014.

For the period of April - January, the FDI in the services sector dropped by about 61 per cent to $ 1.8 billion. According to the department of industrial policy and promotion, the services sector received FDI worth $ 4.66 billion in the same period last year. The services sector consists of banking, insurance, outsourcing, R&D, courier and technology testing and the sector accounts for over 60 per cent to the country’s GDP. The overall foreign inflows to the country have fallen to $ 18.79 billion during the first 10 months of 2013-14 from $ 19.10 billion in same period last year.

The International Monetary Fund (IMF) revised the economic growth of India citing the reasons as supported by the global growth, improving export competitiveness and implementation of recently approved investment projects.

The IMF said that the country’s growth is expected to recover to 5.4 per cent in 2014 from 4.4 per cent in 2013 and also projected a growth rate increase to 6.4 per cent in 2015. The IMF expressed its bearish view on all other emerging markets expect India and had reduced the growth forecast for the entire emerging markets to 4.9 per cent from the current level of 5.4 per cent.

Also the World Bank projected an economic growth rate of 5.7 per cent in the fiscal year 2014 for the country on the back of a more competitive exchange rate and many large investments.

For encouraging the inflows of long term overseas fun, the capital market regulator restricted the foreign investors from buying government securities having maturity of less than one year.

SEBI in its circular said that FIIs/QFIs are only permitted to invest in dated government securities having maturity of one year or above and it has also stated that the existing FII/QFI investments in treasury bills shall be allowed to taper off on maturity/sale. The overall limit for the FII/QFI investments in government securities would remain unchanged at $ 30 billion.

Weak trend were also ruling the global markets as the investors were cautious ahead of the FED minutes and of the Bank of Japan’s meeting. The Bank of Japan held off its monetary expending stimulus saying that the business sentiment is improving but most of the companies remained cautious on the economy’s outlook.

In the US markets the markets saw a sell off coming to the end of the week as the investors exited technology and biotech shares after the dovish comment’s from Federal Reserve. The minutes showed that despite of the recent weakness in economy, the US central bank remained in its decision to wind up the bond buying program late this year.

In the option segment one can buy put options of SSLT, Hindalco, BPCL, Tata Motors and SBI. Also in the stocks segment Piramal ENT and Neyveli Lignite can be bought for short term.

In this week, the markets may remain closed for two days, today on account of Ambedkar Jayanti and on Friday for Good Friday.

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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