Set to race ahead

Jan 20, 2015, 07:24 IST | Arun Kejriwal

With Republic Day nearing the Modi-Obama meet is the most anticipated event, as both Nifty and Sensex seem ready to surge higher as the day nears

The last week was full of action and this time around, RBI governor Raghuram Rajan joined festivities by announcing an unexpected rate cut which was outside of the policy. This move surprised many investors and the markets reaped the benefits of the same.

Raghuram Rajan participated in Sunday’s Mumbai marathon; the RBI’s unexpected rate cut gave momentum to activity at Dalal Street. Pic/PTI
Raghuram Rajan participated in Sunday’s Mumbai marathon; the RBI’s unexpected rate cut gave momentum to activity at Dalal Street. Pic/PTI

The RBI cut repo rated by 25 basis points to 7.75 per cent before trading on Thursday, January 15 and markets respected the rate cut, by rallying. Sensex gained a staggering 729 points and Nifty gained 216.60 points. This rally was 110 per cent of the Sensex’s weekly gain and 95 per cent of the Nifty’s which means but for RBI, the markets were flat to negative.

Closing gains
Sensex gained 663.51 points or 2.42 per cent to close at 28,121.89 points. Nifty gained 229.30 points or 2.77 per cent to close at 8,513.80 points. BSE100, BSE200 and BSE500 gained 2.80 per cent, 2.76 per cent and 2.63 per cent. BSEMIDCAP gained 1.99 per cent and BSESMALLCAP was a laggard up 1.00 per cent. Top sectoral gainer was BSECAP GOODS which gained 4.77 per cent.

BSEREALTY was up 5.74 per cent and BSEFMCG 4.07 per cent. There were just two losers and BSEMETAL was down 4.15 per cent while BSEOIL&GAS was down 0.86 per cent. In individual stocks, top gainer was Hind Unilever up 9.03 per cent followed by IDFC 8.01, and BHEL and L&T from the capital goods sector which was up 7.64 per cent and 6.20 per cent respectively.

Losers were from the metal pack with Hindalco down 10.68 per cent and Sesa Sterlite 6.99 per cent. Oil explorer Cairn India was down 4.59. The sudden rate cut was prompted by economic data to announce a cut outside the policy and give a token boost to the growth story. This well puts at rest any further cuts in February’s monetary review.

With the rate cut clamour out of the way, the bulls would have the Obama story to play out for the coming week when he is the guest of honour at the Republic Day parade. The expectation is that certain defence contracts and some programs which would favour ‘Make in India’ are likely to be signed. The final outcome is a guess which is as good as yours. but this could be the bull’s theory.

Inflation effects
Trade deficit for December quarter was down 44 per cent on account of fall in crude prices and also lower gold imports. WPI or wholesale inflation at 0.11 per cent for December 2014 is well under control and would lend comfort to the government and RBI.

Petrol and diesel prices were cut yet again and there was an increase in excise duty without matching price at the pump level to help government shore its revenues. WPI or wholesale inflation was at 0.11 per cent for December14. The world is jittery and the Russian economy has been downgraded to just a notch above junk status. The Swiss have delinked from the Euro and that saw the Swiss franc rally 30 per cent.

This rise in currency will see some huge defaults in the western world of currency traders. The Swiss franc has always been considered as a safe and stable currency where traders use it as a hedge when playing cross currencies. The Swiss franc therefore did not have any volatility as the underlying currency was the Euro. With this cap lifted and traders scurrying to reverse their trades, the Swiss franc rallied strongly.

There is not much of an impact for us in India. Dow Jones closed at 17,511.57 points a weekly loss of 226 points or 1.27 per cent. There was a smart rally on Friday and this weekly loss is after accounting for that.
There was a seminar on renewable energy held by CII on Friday in Mumbai. The thrust area saw capital cost come down from 3x thermal to almost at par with thermal power plants.

To encourage solar production the concept of Renewable energy certificates or ‘REC’ was introduced with an obligation to state distribution companies to buy this in case they did not produce a lot of renewable energy. This is not being done and needs to be enforced by the government which is in any case the owner of the ‘discom’ or power distributing company. It is a simple solution and can solve many issues at one time.

Business happenings
FII’s have returned to buying and were net buyers of R 3,280 crore last week while domestic institutions were sellers of R 230 crore. The Indian rupee gained significantly and closed at R 61.86, a gain of R 0.46 or 0.74 per cent.

While in the short term this gain is welcome, any further rate cut may actually weaken the rupee as debt investments may not be forth coming with the differential reducing. We could ill-afford any such dramatic fall in the rupee as it would affect our balance of payments significantly.

The markets will continue to be volatile and sharp moves of over 2 per cent in a day cannot be ruled out. Cues will be primarily from global events and some local which could be stock specific as we are in the middle of result reporting season.

The Obama visit to India will be a double edged sword with bulls pumping up the market and bears likely to get their back in post the event when we resume trading on Tuesday, January 27 with three days for expiry next week. Trade cautiously and do not get influenced by SMS or rumours.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website

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