Weekly Market Commentary - Jan 27, 2014 - Jan 31, 2014

RBI governor threw in a surprise again this week. He maintained the RBI’s stance of treating inflation as its enemy no.1 while increasing the repo rate to 8%. Street was expecting no change in interest rates, some even calling for a cut now with food inflation especially vegetable inflation coming down from recent highs. Last week Urijit Patel committee made a recommendation to RBI to replace WPI by CPI as inflation benchmark for calibrating further policy actions. It is too early to say whether RBI has indeed taken up these recommendations. If that is the case, we’ll see more rate hikes in near future to contain CPI inflation and get it under RBI’s comfort zone.

Sensex and Nifty ended this week with losses of 2.9% and 2.8% respectively while CNX Midcap fell 1.6%.

Monday – Sensex down by 2.0%, Nifty down by 2.1%, Midcap down by 2.9%
Markets tumbled as investors pull out money across emerging markets before Fed tapering announcement. Fed is expected to make another cut in stimulus in Ben Bernanke’s last meeting as Fed chairman. Also, weak PMI data from China last week coupled with Argentina abandoning support of its currency peso on the open market, which led to its 15% slide, affected the investor sentiment.

Tuesday - Sensex down by 0.1%, Nifty down by 0.2%, Midcap down by 0.1%
After an onslaught on previous day, market’s attempts to recover, on the back of short coverings, was cut short by RBI’s decision to hike the repo rate by 25bps to 8%. RBI governor Raghuram Rajan defended his actions by claiming that growth cannot be had unless we have inflation totally under control. He pointed out that although CPI inflation excluding food and fuel has remained flat, WPI inflation excluding food and fuel has risen prompting a rate hike from RBI.

Wednesday – Sensex down by 0.2%, Nifty down by 0.1%, Midcap up by 0.5%
Investors stayed on the sidelines as Fed ends its two-day meeting on Wednesday with most economists expecting a further stimulus cut as US recovery shows signs of traction. The stimulus has led to FIIs pouring $20bn in India in 2013. Though Indian govt and central bank maintains that they are prepared to meet any challenge thrown in by Fed tapering, it would be highly likely that any tapering announcement will negatively affect all emerging markets including India.

Thursday – Sensex down by 0.7%, Nifty down by 0.8%, Midcap down by 1.4%
And Fed did it again. Fed tapers another $10bn, signaling confidence that the US economy can stand on its own. This move had an expected negative impact on all emerging markets. Fed has indicated that it will keep on cutting its stimulus as recovery gains strength. Fed bond purchases now stands at $65bn a month.

Friday – Sensex up by 0.1%, Nifty up by 0.3%, Midcap up by 2.3%
Markets ended flat to slightly positive as investors recover from actions of Indian and US central banks. Indian markets closed January with a monthly loss of 3%, worst since Aug 2013.