The retail tale
A poor monsoon, food prices and global uncertainty cause considerable concern
In a move to support the inflow of money into the retail segment especially single brand retail, we saw some moves from Govt agencies. The Govt. may relax local sourcing and brand ownership norms as part of a comprehensive review of the FDI policy for single-brand retail and the local sourcing norms could be modified with the 30 per cent requirement applying to costs and not to sales, as currently stipulated. The condition that retail companies would have to buy from vendors having investment in plant and machinery of less than $1 million would not be relaxed.
Chinese inflation came down to 2.2 per cent in June from May at 3 per cent, which may put the Chinese authorities in a better position to give more importance to monetary easing and support growth, which is showing signs of slowing down. In India, the investor community expects inflation to move up given the below normal monsoon and rise in food prices, due to the forthcoming festival season. The RBI is meeting for its first quarter review on July 31, the inflation and IIP numbers would play a crucial role in their decision making as far as cutting interest rates is concerned.
During last week, we saw the Indian IIP number for May which came in at 2.4 per cent against -0.9 per cent in April, which was above the estimates but the markets slipped on the day of announcement, as the growth in capital goods segment fell while the consumer durable segment gained. The mining sector registered a decline of 0.9 per cent and capital goods segment declined 7.7 per cent, while manufacturing recorded a 2.5 per cent growth in May compared to 0.1 per cent in April. So, as the IIP has shown recovery compared to previous months and inflation expected to move close to double digits, we may see a tough call from RBI as far as rate cut is concerned. In the FII data pertaining to early of July, we saw money flowing into the equity markets to the tune of over Rs 7,312 billion. They expect some reforms to be announced after the PM took charge of the Finance Ministry and there are expectations that the PM will hand over the portfolio to a reformist, or he will hold on the portfolio for the time being.
Another major event was the Infosys Q1 results, which came in on Thursday. The Infosys Q1 net profit jumped 32.92 per cent to Rs 2289 crore for the quarter ended June 2012. But the stock price was hit after the company cut its sales forecast for this fiscal to 5 per cent, which was much lower than 8-10 per cent, predicted last quarter. This sharp revision has caused worry among the investor community as their major revenue generator countries are showing signs of slowdown and companies are cutting down their spending.
Higher costs, higher interest rates and slowing economic activity made SIAM lower its car sales growth forecast for the year ended March 2013. The car sale is expected to rise 9-11 percent lower than the 10-12 per cent growth it had forecast in April. Also this week, the government reported that the remittance from abroad would not be taxed which has eased concerns.
The new government of Greece won a vote of confidence in parliament early last week. The Government, led by Prime Minister Antonis Samaras, was backed by all 179 members of the three parties constituting the Government while 121 members belonging to the Radical Left Coalition voted against the Government. Now, as they have won the vote of confidence they have to put in more efforts to turn around the economy and show credible signs.
Gold has completed its downside correction in the immediate period and it is likely to test $1599 and $1610. Movements above these two levels will lift the commodity towards $1628. Gold has support at $1565 and $1550. Short- term buying can be initiated in counters like Hind Oil exploration, Harrison Malayalam, Thangamayil Jewellery and REC Ltd.
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 email@example.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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