Weekly Market Commentary - Mar 24, 2014 - Mar 28, 2014

Indian markets continued to zoom ahead as its peers in BRIC group faltered. Global investors – in search of better yields, seems to have gone full throttle on India in 2014 due to lack of other potential investment candidates.

Indian rupee has turned around dramatically in past eight months from being the worst performer among emerging market currencies to be the best performer. Strong fund inflows, positive economic data, shrinking current account deficit as well as easing inflation has helped the rupee and equities to move up with vengeance.

 

Problem with Russian equities is quite well known as investors continue to avoid them as global powers call for economic sanctions on the country in aftermath of Crimea annexation.

Brazil is facing somewhat similar political situation as India where current government has disappointed investors with their reforms pace and structure and market is preparing for a potential transition in October elections.

China, on the other hand, is facing prospects of recording its weakest growth since global financial crisis as manufacturing continues to disappoint. China released preliminary March factory survey data on Monday, which showed that manufacturing shrank for the third straight month. This release followed weaker-than-expected industrial output figures for January and February and a shocking fall in exports. Chinese Premier has asked investors to prepare for a wave of bankruptcies in the country.

Sensex ended this week up 2.7% while Nifty was up by 3.1% and Midcap up by 4.4%

Monday - Sensex up by 1.4%, Nifty up by 1.4%, Midcap up by 0.7%
Benchmark indices opened the week in positive territory with banking sector leading the pack. Hope rally continued in the last week of March as investors bet on 3Rs: Reforms, Recovery and RBI.

Tuesday - Sensex and Nifty flat, Midcap up by 0.8%
Markets broadly continued their upward momentum as benchmark indices touch all time highs during the day. Oil and gas stocks corrected a bit as Election Commission took cognizance of issue of gas price hike and asked Centre to defer it.

Wednesday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.6%
BSE Sensex continued its record-breaking steak and closed the day at all time high on the back of strong FIIs inflow. Rupee declined a bit as US recovery strengthens and PSU buy USD on behalf of RBI to prop up the reserve levels. However, sustained FII inflow restricted the decline in rupee value. Rupee is trading at its seven month ahead against the dollar.

Thursday - Sensex up by 0.5%, Nifty up by 0.6%, Midcap up by 0.3%
BSE Sensex rose to another record high as banking stocks gain ahead of expected favorable RBI rate policy review on April 1 and expected decision on Base III norm. Street expects RBI to keep the interest rates unchanged in this meeting as inflation and deficit data is in RBI’s comfortable range.

Friday - Sensex up by 0.6%, Nifty up by 0.8%, Midcap up by 1.9%
Key benchmark indices finished the week at record high – fifth consecutive day of record close. Markets continued moving upwards as RBI extended the deadline by another year for banks to implement Basel III capital-raising rules. RBI extended the deadline to Mar 31, 2019 as banks raised concerns on potential stress to asset quality.

Bubble Trouble

The best way to spot a bubble is when everyone and his uncle start trading investment tips and predicting the next sensex or nifty level. We faced such times during late 2007-early 2008 duration. It seems everyone was on the bandwagon and was busy discussing Reliance Power IPO.

I present a chart below which shows that Indian markets are still far away from attracting volumes and interests they generated during 2007 bubble phase.

When indices makes new highs on the back of lower volumes, it is generally due to more institutional investment in high value stocks. Maybe that's why CNX Midcap is still far away from its record highs.

Time will only tell whether this rally has more legs.