Riding on hope

Jul 07, 2014, 08:55 IST | Alex K Mathews

Confidence in more initiative in the Union budget saw new highs being reached on Dalal Street

In the last week, the markets were seen reaching new highs on the positive global cues and hopes of more initiatives in the Union budget. But the profit booking made the markets to stall in the current levels. Nifty closed at 7751 up around 3 per cent on a weekly basis. Nifty has major support at 7500 and 7442 levels.

The price of food has increased due to lack of rain
The price of food has increased due to lack of rain

The investments to the Indian shares through participatory notes (P- Notes) rose to the highest level in six years at Rs 2.12 lakh crore (over $ 35 billion) in May.

According to SEBI, the total value of P-note investments (equity, debt and derivatives) rose to Rs 2,11,740 crore from Rs 1,87,486 crore in the previous month. The figure was the highest since May 2008 when the total value of such investments stood at Rs 234933 crore.

P-note remains a preferred route for the overseas High net worth individuals, hedge funds and other foreign institutions which allow them to invest in Indian markets through registered FIIs. For January 2014, the P-note investments stood at Rs 1.63 lakh crore whereas for May 2014, the P-notes issued with derivatives as underlying stood at Rs 1.45 lakh crore.

India’s fiscal deficit for the first two months of the financial year touched about the half the amount estimated for all of 2014-15 in the interim budget. According to official data, in April and May the fiscal deficit accounted for 45.6 per cent of the interim budget estimate for the full year and by comparison, the two month had accounted for 33.3 per cent in 2013-14.

During the two month, the tax collections stood at Rs 28,651 crore, 2.9 per cent of the projection for 2014-15 whereas in a year ago period the figure was at 3.1 per cent. The overall receipts stood at Rs 39,502 crore, 3.2 per cent of the Rs 12.34 lakh crore estimated for 2014-15, against 3.3 per cent in the same period last year.

On the back of robust order flows and stronger business sentiment, the HSBC services data which came out this week rose to 17 month high. The headline HSBC services business activity index stood at 54.4 in the June from 50.2 in the previous month. A reading above 50 shows and expansion and below shows a contraction.

Also, the HSBC India composite output index which maps both services and manufacturing rose to a 16 month high of 53.8 in June up from 50.7 in May. Due to the weakness in the sector, the IT sector saw a lowest exposure level by mutual funds in nine months at the end of May.

According the data from SEBI, the mutual fund investment in the software stocks stood at Rs 22,986 crore as on May 31, accounting for 10.25 per cent of their total equity assets under management of Rs 2.25 lakh crore.

This remained the lowest exposure in the sector since August 2013 when the total value of MF investments in the sector was at Rs 20,284 crore. For the sector the investment was at Rs 24,438 crore in the previous month.

At the same time, the mutual fund managers raised their exposure in banking stocks to an all time high of over Rs 48,419 crore in May.

In the last week, the US markets were seen hitting its record high with Dow Jones moving above 17,000 mark for the first time. The uptrend was due to the positive consumer sentiment on the back strong economic data.

Also the hopes that the central banks may keep interest rates low for some times ruled the markets. The ECB in its meeting maintained interest rates at their current levels, with the main refinancing rate at a record low of 0.15 per cent.

Crude has lost key support at $ 105.8, support and is likely to test $ 103.24, in the short term and likely to remain sideways in coming days. Counters like Infosys, TCS, Wipro, HCL-Tech, Ranbaxy, Tata Motors, Maruti, M&M and Bharti are likely to outperform the market in the near term.

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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