Mixed cues from the global arena result in a volatile week
The markets had moved in a range showing sideways movement throughout last week. It was indeed a volatile week with cues from the global arena remaining mixed and domestic woes still alive. The expectation of a rate cut from the Reserve Bank of India (RBI) kept the markets and certain sectors alive. Crude price remaining below $85 also gave support to the markets. Major economic data, which shook the markets during last week, was the May WPI numbers, which moved up compared to the previous month's figures. Inflation, as measured by the Wholesale Price Index (WPI), was 7.23 per cent in April.
In May last year, however, it was 9.5 per cent. Overall food inflation rose to 10.74 per cent in May, from 10.49 per cent in the previous month. Potatoes became costlier by 68.10 per cent, during May on an annual basis while pulses and wheat turned expensive by 16.61 per cent and 6.81 per cent respectively. However, vegetable inflation was lower at 49.43 per cent in May. On the other hand, eggs, meat and fish prices rose 17.89 per cent during the month, slightly higher than 17.54 per cent in April.
Non-food manufactured inflation showed some easing and was 5.02 per cent in May against 5.12 per cent in April. Industrial production growth rate slowed down sharply to 0.1 per cent in April verus (-) 3.2 per cent and against an expected 1.7 per cent due to contraction in capital goods. If Nifty can close at least three consecutive days above 5067, then we can expect a sharp uptrend and Nifty may move up towards 5350 and 5600 levels in a phased manner. The short term moving average combinations and major oscillator's charts are suggesting a firm uptrend in the days to come.
Car sales in India grew at the slowest pace in seven months during May registering a 2.78% growth as high interest rates and petrol prices continue to affect the industry. Specifics show that domestic car sales in May stood at 1, 63,229 units as against 1, 58,809 units in the same month last year. This growth is the slowest since October 2011 when the car sales registered a decline of 23.77 per cent. During the week, the S&P, in its report, had said that India could lose its investment grade due to the slow rate of growth, rising trade deficit and political issues leading to road blocks in policy making.
Greece has moved in for an election on June 17 and the results will be out today. This will have a significant impact on the markets worldwide. Moreover, the RBI meet is also going to set the course for the markets. If the New Democracy party wins the elections, then the global markets would cheer and we may see a gap up in our markets as well. On the other hand, if Syriza, the left wing party, wins the election or gets a majority, then, they may make a coalition with other small parties to form the government. If it happens, then the markets will take a hit. So crucial days are coming for investors.
Slowing demand in the Western markets has caused India's May exports to decline by 4.16 per cent to USD 25.68 billion. The exports had totalled $26.7 billion in the same month last year. Besides, signalling a slowdown in the domestic market, the imports declined as well by 7.36 per cent to USD 41.9 per cent in May 2012 from USD 45.2 billion year-on-year. The trade deficit was shrunk to $16.3 billion against $18.5 billion in May 2011. On the import side, gold and silver imports dropped by over 50 per cent, while plant and machinery declined 8 per cent. However, imports of crude oil were up 14 per cent.
European markets are in a crucial period of right decision making. A Greek exit is believed to worsen the current situation of debt crisis with fear of similar situations arising in Spain, Italy, Portugal and Cyprus. Moody's Investors' service, last week, cut Spain's rating three steps to Baa3 from A3, citing the nation's rising debt burden and slowing economy. Moody's also lowered Cyprus's bond rating to Ba3 from Ba1 as they fear that a Greek exit would trigger a chain of debt situations and Cypriot Bank may not be in a position to address them.
Moody’s also cut the credit ratings of ING Bank NV, Rabobank Nederland and three other Dutch banking groups. Long-term debt and deposit ratings at ING Bank, Rabobank Nederland, ABN AMRO Bank NV and LeasePlan Corporation NV were lowered by two grades, and SNS Bank NV received a one-level cut.
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 firstname.lastname@example.org. 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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