Slow, low, blows

Sep 09, 2013, 07:12 IST | Alex K Mathews

Pace of growth and data give much to worry about

With the world wondering about the Syria situation and the economic outcome in case of a US strike on Bashar Al-Assad's regime, the GDP data stood much below expectation and grew at its slowest pace in four years. The data for the first quarter of the fiscal year 2013-14 stood at 4.4 per cent as compared to 4.8 per cent in the previous quarter.

India’s economy grew only 4.4 percent in the last quarter, the weakest pace since 2009, when the world was reeling from an international financial crisis. Pic/AFP

The growth estimate for the quarter was at 4.7 per cent and the data was at 5.4 per cent last year in the same period. The agriculture sector grew by 2.7 per cent, electricity and mining grew by 3.7 per cent and 2.8 per cent respectively in the first quarter. Meanwhile, mining and manufacturing contracted 2.8 per cent and 1.2 per cent respectively. Short-term resistance can be expected at 5768. Nifty has support at 5555 and 5395.

The HSBC manufacturing PMI data for August 2013 contracted for the first time in over four and a half years on the fall in new business orders. The data stood at 48.5 in August as compared to 50.1 in July. The data was the lowest reading since March 2009. The domestic order index which includes a new order shrank at a faster pace to 47.5 in August, the lowest since February 2009.

Despite the weak GDP and PMI data, there was moderate growth seen in the eight core infrastructure industries. These industries grew by 3.1 per cent in July, which was the highest in the last four months. The reason for moderate growth was cited as the declining output of crude oil and natural gas. Crude oil and natural gas production was contracted by 2.3 per cent and 16.1 per cent respectively in the period under review. Steel production grew by 7 per cent and electricity generation improved to 5.2 per cent in July 2013. During the April-July period, the growth of eight infrastructure industries slowed to 1.9 per cent from 6.3 per cent in the same period last year.

Last week, one saw a number of global agencies lowering their growth estimate in India. The first one was JP Morgan. The global brokerage cut the GDP growth forecast to 4.1 per cent, for the fiscal year ending March 2014 as compared to 5.1 per cent earlier. The other one was the global financial services agency HSBC, which lowered the GDP forecast for the current financial year to 4 per cent from 5.5 per cent, estimated earlier. The major emphasized that the growth may slow in the near term due to tighter financial conditions and higher macroeconomic uncertainty.

On the global front, the Chinese PMI data was the first one to be unveiled. The HSBC PMI data stood at 50.1 in August compared to 47.7 in the previous month, which was also the fastest expanded pace in a year. The US economic data such as services data, which rose to its fastest pace in almost eight years and auto sales lifted consumer confidence. Also, the ECB in its policy meet, kept the interest rates unchanged. Now, markets around the globe are waiting for the Federal Reserve’s decision on supporting the US economy.

In this week, the major data for the Chinese markets may be inflation, industrial and retail sales data. For the US markets, initial Jobless claims, continuing jobless claims, retail sales and Reuters Michigan consumer sentiment data will be watched. Balance of trade and industrial production data will be the major ones in the Euro zone area. For Indian markets, manufacturing output and industrial production may be the triggers to watch out for.

The Rupee is likely to remain strong, provided that it can breach 65.10 and 64.37 in the near term. Support for Rupee will be at 66.75 and 66.95 against dollar. Counters like AXIS Bank, ICICI Bank, L&T are the few counters where we had seen heavy short covering. These stocks were trading in the oversold region and could possibly support this week too.

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 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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