Weekly Market Commentary - Jun 17 - Jun 21, 2013

This week begin with the RBI's decision to maintain status-quo on key policy rates and ended with the new gameplan from Ben Bernanke to taper down its bond purchase program.

I think chances of rate cut announcement in next RBI meeting in July have increased as inflation, trade deficit are trending downward and will move into RBI's comfort zone. Once the rupee worry is out of the way, I expect RBI to cut interest rates by at least 50bps.

Market reaction to Fed announcement of reducing easy liquidity it has splashed the markets with, has not come as a surprise to lot of investors. It is the timing, which caught few investors off-guard. US markets are not yet out of the rut, unemployment is still not back to pre-crisis range, business confidence has not improved significantly meaning none of the objectives of the QE has been achieved so far, in my view.

Sensex extended its losses and ended this week down 2.1%, while Nifty and CNX Midcap lost 2.4% and 2.3% respectively.

Monday - Sensex up by 0.8%, Nifty up by 0.7%, Midcap up by 0.6%
Market gave a thumbs up to the RBI decision of keeping the interest rates unchanged. RBI kept the repo rate intact at 7.25% while CRR was also unchanged at 4%. Although some investors were expecting the rate cut but overall the decision was considered prudent in wake of recent slump in value of Indian currency. Not only the rate cut would have done little to stimulate the domestic economy, I think capital inflows would have incurred more damage making the Indian rupee even less attractive in comparison to US dollar.

Tuesday - Sensex down by 0.5%, Nifty down by 0.6%, Midcap up by 0.5%
Once the market has chewed and digested comments from RBI meeting and decisions taken, the focus has now turned to Fed meeting, which has started today. Market is moving cautiously as Fed comments on tapering off of quantitative easing will be the next catalyst to decide market direction in short term.

Govt released its May trade deficit number which rose to $20.1bn from $17.1bn in April. Deficit widened as gold imports rose by 90% to $8.4bn while exports contracted.

Wednesday - Sensex up by 0.1%, Nifty up by 0.1%, Midcap up by 0.5%
Investors stayed largely nervous and markets remained flat for the day as focus stayed on Fed meeting. Fed will decide on whether they are going ahead with their plans to taper off QE and what will be the timelines. Market is expecting it to stay on until end of this year at least. Many investors hold QE responsible for excessive froth in the market and expect markets to return to normal after excessive liquidity is withdrawn.

Thursday - Sensex down by 2.7%, Nifty down by 2.9%, Midcap down by 2.4%
Sensex registered its biggest drop in 2 years as Fed discussed its timeline to taper down its bond purchase program (aka QE) later this year. Indian rupee also slumped and touched its new low of 59.93 to a dollar. Though timeline is little more aggressive than expected, and is replete with lots of ifs and buts, I believe we will return to normal markets where fundamentals will be the biggest drivers in stock and index values.

Friday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 1.5%
Market indices bounced back a little from yesterday's low amid FM's assurance that govt will do all it can to curtail the rupee fall.

Govt cleared a proposal that will allow power companies to pass on the cost of imported coal to customers. The move is a big relied to power generation companies struggling with high losses.