We don't need no Intervention

One of the key roles of a central bank (or a monetary authority) is to manage inflation expectations. Inflation expectations are nothing but expected future trajectory of inflation. Central Banks try to set inflation expectations, to help businesses and citizens plan their future investments, lives accordingly.

RBI in India for instance, will regularly communicate its analysis of existing inflation trends and its expected future trajectory - food basket prices, liquidity situation, credit and deposit growth etc. with the market. This is done to reduce the gap between the view of RBI and what every individual and corporate’s calculation and expectation of inflation is.

Also, inflation expectations feed into future inflation. For example, if you as an employee know (from RBI releases) what inflation trend is going to be in a particular year, you would plan to negotiate a better than inflation salary hike (or work towards it) during your annual appraisal and your employer may try to protect his margins (profits) by getting more work out of you and/or raising the price of the product/service he's selling. This series of events will eventually increase the inflation.

On the other hand, if people expect future inflation to be low, they will postpone their consumption (or purchase) and hence affect demand which will lead to lower prices and lower inflation or deflation.

The other implicit role of RBI is to foster monetary and financial stability conducive to sustainable economic growth.

Now, in the battle between growth and inflation, RBI is at crossroads.

On one hand, pro-growth economists argue that inflation is now at a subdued level and ground is now set for reduction in prevailing interest rates to stimulate investments and growth in the economy.

On the other hand, critics of this camp argue that the fight against inflation is not yet over and the respite is a temporary one.

Whether to cut interest rates or not - remains a tough call to make.

Interest rates are function of demand and supply of money in the market. When the supply of money is higher than the demand, price of money i.e. interest rates fall and vice versa. So, a sure way to reduce interest rates is to increase the supply of money in the market and that is what we have seen happening in developed economies of US (Quantitative Easing, or QE), Europe (rate cuts by ECB) and Japan (Abenomics) recently.

These developed economies are trying to stimulate their economies by infusing liquidity into the system. All these stimulus programs normally run a four step course:

a. A central bank infuses liquidity, typically by lowering the money market interest rates. Or it buys treasury/corporate bonds, raising their prices and hence lowering the yields and cost of funds in the markets.

b. The easing leads to a steepening of the yield curve, benefiting bank margins and enhancing their willingness and capability to lend.

c. Businesses and consumers respond to the lower borrowing costs by raising capital to expand and increase their activities.

d. ..which ultimately leads to rebound in economic growth and other macro indicators.

Luckily, Indian central bank does not have to go through all this pain to stimulate the markets.

When RBI is grappling with dilemma of whether to cut or not, market has slowly and steadily done what it does best - reconciling reality to the expectations.

Increasing foreign fund flows in the Indian markets (equity and debt) have led to excessive liquidity in the system which has led to lowering of cost of borrowing for Indian corporates.

According to recent news reports, firms have been using more commercial paper than bank credit for their short term capital requirements. The reason is simple.

Money market rates have fallen sharply, and are trending below lending rates offered by banks. This effect can be seen from the following chart where 10 days moving call money average has fallen below repo rates and have stayed there for most of 2014.

Repo rate is what banks pay to central bank for the money they have borrowed in the event of any shortfall in funds.

Moreover, banks being flush with liquidity are facing a rare situation of bulk deposit rates falling below retail deposit rates. The minimum historical spread of 1% has now fallen to negative 25bps.

So, when banks can get cheaper funds from corporates, why to pay retail customer more. So, they have now started cutting their deposit rates which will eventually lead to fall in lending rates.

Not to mention, bond prices have already started reflecting a rate cut in Dec 2 RBI meeting as yields on benchmark 10-year bond has been continuously falling.

Lower-than-expected inflation data and tumbling global commodity prices have led to a belief in the bond markets that the Reserve Bank of India (RBI) will soften its stance on interest rates at the next policy review on Dec 2. This may be followed up by a rate cut at the start of the next fiscal year, according to several traders and bank treasurers.

All this is happening without RBI intervention.

So, the bottomline is rates are coming down, whether RBI decides to cut key lending rates or not. RBI's decision on rates on Dec 2 will however, tell us where are we in our battle against inflation.

Weekly Market Commentary - Aug 18, 2014 - Aug 22, 2014

PM Narendra Modi’s maiden Independence Day speech did well to excite Indian citizens with prospects of wonderful days ahead and enthuse investors to pour money into the Indian markets.

One thing is for sure, India is no longer business as usual. Things are changing, albeit at a slower pace than some expected, but it is changing. More and more projects are been given green light – without losing the focus on environmental issues, societal changes have been signaled without ruffling the opposition’s feathers and efforts are been made to drastically cut down the red tape and make India one of the world’s favored business destination (WB ranks us at 134 out of 189 economies ranked).

Modi also send the last reminiscent of India’s attempt of mimicking Soviet’s command economy – Planning Commission packing. With Planning Commission gone, the focus turns back to decentralization of Indian economy with states getting even more financing powers and autonomy going forward.

Sensex ended this week up by 1.2% while Nifty was up by 1.6% and Midcap up by 3.6%

Monday - Sensex up by 1.1%, Nifty up by 1.1%, Midcap up by 1.7%
Investors cheered as PM Narendra Modi delivered his maiden Independence Day speech where he vowed to make radical changes in the way country is run especially the bureaucratic setup. The news of declining WPI to five- month low and easing of tensions over Ukraine also boosted the positive sentiment.

Tuesday - Sensex up by 0.1%, Nifty up by 0.3%, Midcap up by 1.0%
Both Sensex and Nifty continued their journey upwards as oil retailers surged after Brent hit its 14-month low. FII sentiment is buoyed by positive noises made by Modi govt. on reforms and strong trust on RBI governor Raghuram Rajan’s ability to tackle exchange rate crises and inflation. Falling crude prices have also added to the bullish sentiment as India’s import burden eased.

Wednesday - Sensex down by 0.4%, Nifty down by 0.3%, Midcap up by 0.3%
Benchmark indices corrected after rallying continuously for six days as investors booked profits ahead of scheduled US Fed meeting on Thursday.

Thursday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.4%
Both Sensex and Nifty edged higher as FIIs continued to pour money in Indian markets, especially in blue-chips reflecting continued optimism about corporate earnings and a recovery in the domestic economy. Slipping in crude oil prices as China reported slowdown in its huge factory sector also helped the sentiment.

Friday - Sensex up by 0.2%, Nifty up by 0.3%, Midcap up by 0.2%
Nifty closed at its all-time high of 7,913.20 points led by IT stocks - which rallied on the news of improving prospects of US economy, and banks rose as RBI looks into reviewing lending caps to align them with global standards set by Basel committee.

Weekly Market Commentary - Aug 4, 2014 - Aug 8, 2014

The week started off with good positive movement in anticipation of more relaxation in funds available to lenders from RBI. RBI didn’t disappoint on that one. While reducing the SLR and bond holdings percentage in HTM portfolio, governor made sure the funds availability for investment into productive assets increases considerably.

The governor did acknowledge that the fight with inflation is far from being over and there needs to be more cautiousness and patience on the street before he gets into the rate cutting mood.

The highlight of the week was Governor Raghuram Rajan warning that global markets are at the risk of a "crash". The culprit he identified was the loose monetary policy game developed economies are playing where they are trying to outdo each other in charging rock bottom interest rates.

Raghuram Rajan in an interview said, “unfortunately, a number of macro- economists have not fully learned the lessons of the great financial crisis. They still do not pay enough attention - en passant - to the financial sector. Financial sector crises are not as predictable. The risks build up until, wham, it hits you".

Sensex ended this week down by 0.6% while Nifty was down by 0.4% and Midcap down by 1.1%

Monday - Sensex up by 1.0%, Nifty up by 1.1%, Midcap up by 1.1%
Benchmark indices started the week with an upward move led by software services exporters such as Infosys which gained as rupee weakened ahead of RBI's policy review. Market is widely expecting RBI to keep interest rates on hold as inflation is still outside central bank’s comfort zone.

Tuesday - Sensex up by 0.7%, Nifty up by 0.8%, Midcap up by 0.7%
Both Sensex and Nifty inched higher as RBI loosen the grip on liquidity more while keeping the interest rates unchanged as expected. Central bank reduced the Statutory Liquidity Ratio by 50bps to 22% of deposits (SLR is the amount of liquid assets such as gold or govt. (approved) securities, that a bank must maintain as reserves other than the cash). This move will help banks to channel more funds into productive sectors of the economy.

Wednesday - Sensex down by 0.9%, Nifty down by 1.0%, Midcap down by 0.6%
Markets snapped as RBI policy review effects get absorbed in the market. Lenders such as SBI and ICICI fell on worries that RBI move of reducing SLR requirement and amount of bonds in held-to-maturity (HTM) portfolio will led to rise in yields and decline in value of their debt holdings. The existing benchmark 10-year bond yield surged 10bps to 8.83%, its biggest single-day rise in four months, on Tuesday and an additional 2bps on Wednesday.

Thursday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap down by 0.5% 
Markets continued to trade weaker as both Sensex and Nifty declined by 0.3% on profit booking. Geo-political concerns also weighed on the investors’ mind.

Friday - Sensex down by 1.0%, Nifty down by 1.1%, Midcap down by 1.7%
Investors continued to stay cautious as US President Barack Obama authorized targeted air strikes in Iraq. There was a sell-off in global markets on rising worries of another drawn-out conflict in the region.

Weekly Market Commentary - Jul 28, 2014 - Aug 1, 2014

Sensex ended this week down by 2.5% while Nifty was down by 2.4% and Midcap down by 0.2%

Monday - Sensex down by 0.5%, Nifty down by 0.5%, Midcap down by 0.3% 
Investors continued to book profits in the blue chips names ahead of the derivative expiry this week. RBI monetary policy review on next Tuesday will be the next catalyst for Indian stocks.

Tuesday – Markets closed on Id-Ul-Fitr (Ramzan Id)

Wednesday - Sensex up by 0.4%, Nifty up by 0.6%, Midcap up by 0.7% Markets went up slightly after Bharti Airtel, Lupin Ltd and Dr Reddy's Laboratories Ltd posted results better than street expectations. The gains were capped ahead of derivative expiry, expected Fed statement later in the day and lower than consensus L&T results.

Thursday - Sensex down by 0.7%, Nifty down by 0.9%, Midcap up by 0.1% Markets fell on the derivative expiry day weighed down by FII sales after not so impressive numbers from Maruti Suzuki and HCL Technologies. Cadila Healthcare also slumped 4.5% USFDA made certain observations after conducting a "product specific" inspection of its Moraiya manufacturing plant.

Friday - Sensex down by 1.6%, Nifty down by 1.5%, Midcap down by 0.7% 
Sensex and Nifty declined nearly by 1.5%, marking their biggest single-day fall in nearly 3-1/2 weeks in tandem with global market peers ahead of U.S. jobs data. Some analysts are anticipating that a strong US job report will prompt Fed towards interest rate hike, effectively slowing down the interest rates fueled rally across the globe.

Weekly Market Commentary - July 14, 2014 - July 18, 2014

Markets started off the week low as absence of any big bang reform from the budget continues to irk some investors. Now that the budget euphoria is over and reality has kicked in, many investors are realizing the strong undercurrents in the economy. The macro environment is improving, the trade esp. exports numbers are picking up, inflation showed a decline and RBI in tandem with the govt. came to the rescue of ailing infrastructure sector with its exemption on reserve requirements.

The best part is that the govt. knows its task and is very devoted to achieve it. Next month it is going to take a call on the sale of $3.0bn worth of PSU stake.

I’ll say that the budget was just a starting point not the ending. Picture abhi baaki hai mere dost!

Sensex ended this week up by 2.5% while Nifty was up by 2.7% and Midcap up by 4.8%

Monday - Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.2%
Benchmark indices continued to trade on weak momentum, falling for the fifth consecutive session. FIIs have turned sellers and have disposed $120.6mn worth of stock on Friday, after been continuously buying $1.6bn worth stocks for previous six sessions into the budget.

There was a major setback for drug industry after India's drug pricing regulator cut and capped the prices of more than 100 drugs used to treat diseases. Sanofi India, with the largest basket of anti-diabetes and heart disease medicine lost more than 10% as its revenue is expected to hit by Rs.139 crores in this fiscal year alone.

Tuesday - Sensex up by 0.9%, Nifty up by 1.0%, Midcap up by 2.3%
Sensex and Nifty took a break from falling and rose about 1% each after June inflation data showed consumer inflation slowing to the lowest since January 2012. CPI eased to 7.31% after Modi govt. curbed farm exports.

Wednesday - Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.5%
Infrastructure and related stocks went up as RBI exempted long term bonds raised for lending to the sector from reserve requirements. Investors are happy as banks, and hence the infra companies would now have access to more funds at lower costs. India also released its trade data, which showed 10.22% y-o-y rise in exports in June as external demand picked up amid weaker currency environment.

Thursday - Sensex flat, Nifty up by 0.2%, Midcap up by 1.2%
Sensex and Nifty continued to trade in green led by infra related stocks which remained buoyed on previous day’s news. Improved rain prospects also led to some sentiment improvement. The focus has now moved to corporate earnings with TCS set to release its numbers later in the day.

Friday - Sensex up by 0.3%, Nifty up by 0.3%, Midcap down by 0.5%
IT stocks rallied on the great set of numbers from TCS, which reported a 45% growth in its bottomline. Lenders continued to gain after the reserve requirement relied from RBI. Shares of NBFCs which take gold as collateral, surged after RBI issued draft guidelines for those seeking a license to set up a payments banks or a small bank.

Weekly Market Commentary - June 2, 2014 - June 6, 2014

Another week of record highs on Indian bourses. Sensex and Nifty are moving up as bears struggle to find any negative catalyst to put a brake on upward journey.

Modi govt has taken the complete charge of New Delhi and is urgently seeking to reboot the economy. It has initiated and publicly announced its intentions to completely overhaul the existing structure of subsidies and doles and get fiscal house in order.

All eyes on budget session now; which will begin in first week of July.

Sensex ended this week up by 4.9% while Nifty was up by 4.9% and Midcap up by 8.0%

Monday - Sensex up by 1.9%, Nifty up by 1.8%, Midcap up by 2.2%
Sensex and Nifty gained as PSU banks rallied on hopes the govt will rationalize the shareholding structure by selling some of its holdings. Investors seems to have shrugged off release of another sub-5% GDP growth numbers as they keenly await RBI’s policy review meeting on Tuesday.

Tuesday - Sensex up by 0.7%, Nifty up by 0.7%, Midcap up by 0.9%
Key benchmark indices gained as RBI held rates steady and toned down its hawkish stance hinting at a rate cut in coming review meeting. RBI also allowed more funds into the system for lending by cutting down on SLR by 50bps. Sugar stocks rallied on expectations that govt might push blending ethanol in petrol and increase the import duty to support local prices.

Wednesday - Sensex down by 0.2%, Nifty down by 0.2%, Midcap up by 1.6%
Sensex and Nifty retreated from their record closing highs as IT companies fell on concerns of stronger rupee. Rupee has gained around 4% so far this year and is among the best performers among the Asian currencies. Fertilizer stocks rallied on hopes that the govt will soon clear outstanding subsidy payments. Insurance companies also some rally on the expectations that govt will raise FDI limit to 49% from 26%.

Thursday - Sensex up by 0.9%, Nifty up by 1.0%, Midcap up by 1.4%
Sensex and Nifty made another record closing high as resource stocks led by Sesa Sterlite gained on positive momentum based on revival of Indian economy.

Friday - Sensex up by 1.5%, Nifty up by 1.5%, Midcap up by 1.7%
Another day of record close high of both Sensex and Nifty. Investors continued to stay bullish over the policy reforms (about to be) initiated by govt. FIIs continue to invest heavily in Indian markets with total purchase so far being $8.3bn this year.

Weekly Market Commentary - May 19, 2014 - May 23, 2014

As dust settles on election results, investors now keenly wait for the formation of new government structure, which PM elect Narendra Modi has indicated would be small and compact. Investors are all excited and the sentiment on the street is quite bullish – midcap gained more than 10% this week, largely due to strong performance from domestics. Also, see this chart.

Modi will take the oath of PM office on Monday along with his cabinet (hopefully) and we may see return of Arun Shourie to mainstream politics. He was widely known for his portfolio of disinvestment minister – when he ushered in slashing govt stakes from key companies in a bid to make them less bureaucratic, less corrupt and more competitive and efficient.

There are huge expectations with new govt, which has won this election on the agenda of development and reforms. A Reuters report cited this week that finance ministry is working on a proposal to cut welfare spending and reining in fiscal deficit to 3.8-3.9% of GDP in its first budget – hopefully will be presented in July. In my view, it is a prudent step – not only it will make govt. more fiscally responsible, it will also have a long-term impact on inflation.

Sensex ended this week up by 2.4% while Nifty was up by 2.3% and Midcap up by 10.2%

Monday - Sensex up by 1.0%, Nifty up by 0.8%, Midcap up by 4.4%
Markets continued their journey upwards, with Sensex and Nifty on their record-breaking spree. The domestics remained the central attraction to investors and sustained their rally. Gains were capped with exporters such as IT majors and pharma falling as rupee strengthened against the dollar.

Tuesday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 1.0%
Strong performance by domestics and midcaps continued as cabinet formation days draws nearer.

Wednesday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap up by 0.7%
Finally, benchmark indices took some breather as blue chips such as L&T retreated from recent strong gains a day after foreign investors turned net sellers for the first time in about a month.

Thursday - Sensex up by 0.3%, Nifty up by 0.3%, Midcap up by 1.7%
Expectations that Coal India might get split into smaller companies, led to a rally in the stock. The Nifty closed at a record high as investors resumed buying stocks of companies expected to benefit from an economic recovery. Titan surged after RBI allowed banks to provide gold loans to jewellery makers.

Friday - Sensex up by 1.3%, Nifty up by 1.2%, Midcap up by 2.0%
Markets rallied after SBI surged 10% after reporting decline in bad loans indicating worse may be over for banking sector in terms of asset quality. There was some rally in power stocks in expectations of reform measure from incoming government.

Weekly Market Commentary - Apr 14, 2014 - Apr 18, 2014

Two steps back and one forward. That is pretty much how I will describe the action on Dalal Street this (short) week. IT stalwarts - Infosys and TCS reported better earnings but gave contrasting guidance, hence making sure the sector stayed volatile during the week. Throw in a bit of inflation and you have investors in every sector running for the corners. The thing about rallies built on hope and hype is that they don’t need much to fizzle. Remember, no matter how big the bubble is, you only need one small pin to burst it.

Sensex and Nifty ended the week at pretty much the same level as last week while Midcap down by meagre 0.2%

Monday – Markets closed on occasion of Baisakhi / Ambedkar Jayanti

Tuesday - Sensex down by 0.6%, Nifty down by 0.6%, Midcap down by 0.9%
Markets were down as inflation raised its head again and soared to three-month high figure of 5.7% in March - dashing hopes of any rate reprieve from central bank. Almost all interest rate sensitive stocks fell while IT stocks surged on the back of good earnings reported by Infosys.

Wednesday - Sensex down by 0.9%, Nifty down by 0.9%, Midcap down by 0.8%
BSE Sensex corrected another 200 points as fear of rising inflation was stoked by the predictions of below normal rainfall this year. IT stocks fell as Infosys guidance pointed to weak outlook for the sector. Retail inflation also rose in tandem with WPI to 8.31% in March, largely driven by higher food prices also made investors cautious.

Thursday - Sensex up by 1.6%, Nifty up by 1.6%, Midcap up by 1.5%
Benchmark indices roared back as banks surged on value buying and hopes of bond portfolio gain as RBI fully sold the Rs.200bn debt it had on offer. IT stocks also rose as TCS and HCL reported better than expected earnings with positive future revenue guidance.

Friday - Markets closed on occasion of Good Friday

Weekly Market Commentary - Mar 31, 2014 - Apr 4, 2014

Elections are coming. This week was a crucial week for the market as it recorded the all time highs our benchmark indices have achieved. This week was also crucial, as its performance will be benchmarked against for comparison in near to medium term to analyze the hope rally. This week also marks the end of wait for the biggest exercise in world’s biggest democracy to begin. The results of this exercise will probably tell the investors – and rest of the country that whether optimism and hope rally did really have any strong legs or was it just another bubble based on euphoria around Narendra Modi.

Sensex and Nifty ended this week flat while Midcap was up by 1.5%

Monday - Sensex up by 0.2%, Nifty up by 0.1%, Midcap up by 1.1%
Indian stocks benchmark indices went up slightly and closed the fiscal year 2014 close to 20% higher than 2013 as strong foreign buying sparked a rally in stocks leveraged to domestic story. Market also expects RBI governor to hold interest rates on coming review meeting on Apr 1.

Tuesday - Sensex up by 0.3%, Nifty up by 0.3%, Midcap down by 0.3%
Sensex and Nifty continued to record new highs as RBI left interest rates unchanged and brought a relief to investors by saying that it may avoid any more policy tightening in near term.

Wednesday - Sensex up by 0.5%, Nifty up by 0.5%, Midcap up by 1.5%
BSE Sensex touched another high on the back of heavy FII buying and election commission allowing RBI to grant new bank licenses. Potential bank license candidates led the gainers with IDFC and LIC Housing Finance surging 4% and 5% respectively.

Thursday - Sensex down by 0.2%, Nifty down by 0.2%, Midcap down by 0.8%
Benchmark indices retreated from their all time highs as caution eclipse the optimism in the market as five-week election process draws closer. Investors booked profits as earnings season is also about to kick off with Infosys announcing its results on Apr 15.

Friday - Sensex down by 0.7%, Nifty down by 0.6%, Midcap flat
Market turned to profit booking on the last day of trading before election process begins (on Monday). IMF released a report saying that India’s economic mess is due to internal issues, strongly refuting the UPA govt’s claims blaming external macroeconomic environment for India’s problems.

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.

Weekly Market Commentary - Feb 17, 2014 - Feb 21, 2014

Markets cheered the vote-on-account. Some investors appreciated the excise duty cuts meant to boost the auto, manufacturing and capital goods sectors, while others celebrated FM meeting his fiscal deficit target of 4.8%. In fact, he has done better and achieved fiscal deficit of 4.6%. Sensex ended the week 300 points up.

However, if we look closely to the vote-on-account statements, we will observe that a lot of accounting talent has been put to use to fudge the numbers to meet the above target. FM postponed the subsidies; recorded revenues in advance; coaxed public sector companies like Coal India and few PSU banks into paying special dividends - harming the interest of their minority shareholders; moved money from one public company to another as in the case of IOC, where ONGC and Oil India will buy stake from govt.

Govt accounting has made Enron look good. Incoming govt will have an uphill task in getting the fiscal house in order.

Sensex ended this week up 1.6%, Nifty was up by 1.8% while CNX Midcap was up by 2.1%.

Monday – Sensex up by 0.5%, Nifty up by 0.4%, Midcap up by 0.1%
Markets recovered their lost ground during the closing as some buying emerged as air around the interim budget cleared. Govt move to reduce excise duty from 12% to 8% for small cars, bikes; from 30% to 24% for SUVs and; from 24% to 20% for mid segment cars came as a huge relief to reeling auto sector. Govt also reduce the excise duty for capital goods and consumer durables by 200 bps to provide a fillip to ailing manufacturing sector. FM’s accounting jugglery to meet fiscal deficit target helped India to escape the danger of rating cut from premier rating agencies.

Tuesday - Sensex up by 0.8%, Nifty up by 0.9%, Midcap up by 0.9%
Markets went up as the optimism from govt move to avoid the populism and provide a boost to certain sectors in the form of excise duty cuts improved the investor confidence. Banking sector stocks led the rally as expectations of turnaround in economy led to rise in expectations of more lending.

Wednesday – Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 0.6%
Benchmark indices continued to be buoyed by positive sentiment generated by vote-on-account. The gains were mainly on the back of overnight gains in the US market and sustained capital inflows from foreign funds.

Thursday – Sensex down by 0.9%, Nifty down by 1.0%, Midcap down by 0.2%
Market had a pullback as China reported weak manufacturing data and US maintained its stand of tapering of quantitative easing.

Friday – Sensex up by 0.8%, Nifty up by 1.1%, Midcap up by 0.8%
Stocks went up as US factory activity accelerated at its fastest pace in four years in February leading to rise in firming up of all Asian markets.

Weekly Market Commentary - Feb 10, 2014 - Feb 14, 2014

Highlights of this week will be the growing contrast between US economy, which has shown some strong signs of recovery in their economy, and Indian story, whose biggest facilitator public sector banks have started crumbling under the weight of increasing NPAs. The chance of some bank going under or requiring state assistance or bail-out have become very strong since United Bank of India story went out. State Bank of India’s weak results is indicator of how deep the mess is.

It is India’s worst kept secret that our public sector banks (and their investors) are suffering under crony capitalism –which reached its zenith under UPA regime. It is a high time now when our banking regulator – RBI may take a leaf out of its Governor Raghuram Rajan’s widely read book “Saving Capitalism from the Capitalist”- rolls up its sleeve and gets our banks out of clutches of this govt-crony nexus.

Sensex ended this week flat, Nifty was slightly down by 0.2% while CNX Midcap was down by 1.3%.

Monday – Sensex down by 0.2%, Nifty down by 0.2%, Midcap down by 0.3%
Markets continued their lackadaisical performance as earnings season continues without any major surprise. Investors continued to book profits on IT and banking sectors. Beginning of two-day nationwide strike by public sector bank staff also affected the trading on banking counters.

Tuesday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.1%
Indices rose slightly led by two Tata group companies. Tata motors rose the most in two months after its quarterly profit tripled. Tata Steel Ltd gained to its highest level in three weeks before its earnings report. The gains in Sensex were offset by fall in RIL shares after Delhi Chief Minister Arvind Kejriwal filed an FIR against Mukesh Ambani.

Wednesday – Sensex up by 0.4%, Nifty up by 0.4%, Midcap flat
Markets rallied after US Congress agreed to advance legislation extending US borrowing authority. Also, newly appointed Fed Chairman Janet Yellen held off from making any changes to tapering schedule set the Asian shares soaring.

Thursday – Sensex down by 1.2%, Nifty down by 1.4%, Midcap down by 1.3%
Earnings disappointment in Cipla and Coal India stocks dragged the benchmark indices down. Also, govt released data indicated that industrial output contracted by 0.6% in December meaning all is still not well with the economy although retail inflation did ease to its two year low of 8.79%.

Friday – Sensex up by 0.9%, Nifty up by 0.8%, Midcap up by 0.3%
Sensex rose on last day of the week as some traders rushed to cover their shorts ahead of presentation of interim union budget next week. Meanwhile, January WPI numbers came at 5.05% vs. 6.2% in December, lower than ET-Now poll estimate of 5.5%.

Weekly Market Commentary - Feb 3, 2014 - Feb 7, 2014

Indian investors seem to have become defensive, as no new strong catalysts seem to emerge before elections in May. In fact, some of them are worried that current establishment may play a populist card to garner as much voting support as it can. The 70,000 crores farm loan waiver that UPA govt doled out is still bleeding the public sector banks’ balance sheets.

FIIs are already closing out positions in India and are avoiding fresh positions till elections. They have cut their positions worth $340mn since US Fed decided to cut its stimulus package further by $10bn on Jan 29.

Indian markets are expected to be “source of fund” for FIIs in coming months as they put their money in other markets where current environment is more congenial.

Sensex and Nifty ended this week with losses of 0.7% and 0.4% respectively while CNX Midcap fell 0.8%.

Monday – Sensex down by 1.5%, Nifty down by 1.4%, Midcap down by 1.1%
Markets continued their weak performance from previous week with Sensex falling more than 300 points as China manufacturing slowdown coupled with US Fed’s cut in stimulus spending sent caution among the foreign investors across the globe.

Tuesday - Sensex and Nifty flat, Midcap up by 0.4%
Indices recovered a little as investors cover their shorts and some value emerged during the end of the day. FIIs continued to stay net sellers and are expected to avoid any fresh buying before elections.

Wednesday – Sensex up by 0.2%, Nifty up by 0.4%, Midcap up by 0.6%
Markets stayed beaten down with no fresh buying seen across most of the counters. Short covering led to the up movement in some of the indices stocks.

Thursday – Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.3%
Market inched towards its week high as FIIs turned net buyers. Bargain hunting is leading to small gains in the indices as Indian markets continues to practice caution like other emerging markets ahead of US non-farm payroll data.

Friday – Sensex up by 0.3%, Nifty up by 0.4%, Midcap up by 0.7%
Markets ended the day at its week high as all emerging markets took cue from small US rally previous day. US stocks rallied ahead of non-farm payrolls data as unemployment benefit applications declined which is as indications of improving labour market and US recovery.

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.

Weekly Market Commentary - Jan 20, 2014 - Jan 24, 2014

Investors were a cheerful lot for most of this week. So far, result season has been good, has been largely without any negative surprises. Dollar earning sectors seems to have picked up steam on hope of strengthening US recovery. Falling inflation levels have also brought back the rate cut clamour. Everything was good and normal until two important events happened. One, Urijit Patel tabled a report on strengthening monetary framework, which among other things recommended changing the inflation targeting benchmark to CPI from WPI. If this happens, it may lead to higher interest rates in near to medium term and may put a dampener on India’s growth plans (for short term). Two, RBI governor made statements to the effect of inflation fighting would be the main focus of RBI, which dashed hopes of rate cut in RBI review meeting on Jan 28.

Sensex and Nifty ended this week with small gains of 0.3% and 0.1% respectively while CNX Midcap fell 0.9%.

Monday – Sensex up by 0.7%, Nifty up by 0.7%, Midcap up by 1.0%
Market’s mood was cheerful as index heavyweights Reliance Industries and Wipro managed to beat consensus and post healthy results. Reliance fared better than street forecasts as its refinery earned $7.6 per barrel of crude refined, significantly better than Singapore GRMs (Gross Refining Margin) of $4.3. Shares went up initially but lost all its gains in the latter half of the day. Wipro ended the day up as its results showed that business continued to improve as signs of turnaround and margin expansions are growing.

Tuesday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.2%
Market continued its uptrend amid some profit booking seen on the bourses. Govt decision to sell stake in Hindustan Zinc to cover some of its fiscal deficit also helped to improve the sentiment.

Wednesday – Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 0.1%
Indices spurted to all time highs in latter half of the day as investors flocked to buy pharma, metal and banking stocks on expectations of strong corporate earnings and rate cut by the Reserve Bank.

Thursday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap down by 0.4%
Markets continued their rally and closed at another record high as industry bellwether, L&T, which is widely considered the barometer of Indian economy, rose as much as 4% after reporting a 22% jump in standalone net profit for 3Q.

Friday – Sensex down by 1.1%, Nifty down by 1.2%, Midcap down by 1.8%
Indices snapped on last day of the week as RBI governor Raghuram Rajan calling inflation a “destructive disease” dashed hopes of investors expecting a rate cut in the review meeting. These comments bring RBI’s priorities to tackle inflation first before focusing on growth to the fore again. In another event, Ranbaxy’s stocks crashed 20% after US FSA banned the firm from shipping drugs from its Toansa plant. Weak global trend following poor economic data in the US and China dampened the market sentiment.

Weekly Market Commentary - Jan 13, 2014 - Jan 17, 2014

Low inflation numbers came as a respite to both Indian consumers and investors alike. In hindsight, the decision of RBI governor to not raise interest rates in last review meeting proved to be sound. He rightly pointed out in that meeting that RBI should avoid taking long term measures for tackling the short term problems or issues. If inflation continues to get leveled the chances of a rate cut becomes strong to revive Indian growth story. Let’s see how everything rolls out in coming days.

Sensex and Nifty gained 1.5% while CNX Midcap was down by 1.1% this week.

Monday – Sensex up by 1.8%, Nifty up by 1.6%, Midcap down by 0.2%
After a muted trading activity last week, markets saw a surge in interest in technology, energy and financial stocks. Infosys’ good results, improved dollar revenue guidance and expected positive news from other IT stocks also has raised hopes of the market. Govt’s move to notify the gas Rangarajan’s gas price formula led to improvement in energy stocks levels. In addition, weak US job data also eased the tapering concerns of investors around the globe that added to the buying momentum in the Indian markets.

Tuesday - Sensex down by 0.5%, Nifty down by 0.5%, Midcap flat
Markets pared gains it made previous day mostly because of profit booking. Lower retail inflation numbers released by the govt. on Monday evening failed to cheer up the markets as the decline was already factored in the market prices.

Wednesday – Sensex up by 1.2%, Nifty up by 1.3%, Midcap up by 0.6%
Although the retail inflation numbers were low but the fall in wholesale prices took the market by surprise. WPI increased by 6.16% far below the street estimates of 6.99%. This decline has finally set aside the speculation on rate hikes in RBI review meeting at the end of this month. Sensex touched its five-week high on the back of rise in interest rate sensitive sectors such as auto, banks and financials.

Thursday – Sensex and Nifty flat, Midcap down by 0.4%
Markets continue to trade range bound as increased hopes of no rates hikes in RBI meeting was countered by profit booking. The news that Reliance Jio is planning to bid for spectrum licenses also led to huge selling across the telecom sector stocks as re-entry of RIL may bring back the price wars and cut into profitability of the sector.

Friday – Sensex down by 0.9%, Nifty down by 0.9%, Midcap down by 1.1%
Markets slide as TCS posted lower margins and guided to no recovery until the general elections are over in the country and things stabilizes a bit. Profit booking also led to selling across all counters.

Weekly Market Commentary - Jan 6, 2014 - Jan 10, 2014

Trading activity remained muted for most of the week only to be picked up at the end of the week with starting of 3Q earnings season. Apart from ongoing earnings season, markets will also see release of CPI and WPI data next week, on which RBI’s interest rate policy hinges. Govt is also expected to come up with stake sales of IOC and Engineers India this month and BHEL, HAL in next to meet its disinvestment target of Rs 40K crores.

Sensex fell by 0.4%, Nifty lost 0.6% while CNX Midcap was down by 1.9% this week.

Monday – Sensex down by 0.3%, Nifty down by 0.3%, Midcap up by 0.3%
Market activity remains muted in absence of any catalysts. Most Asian stocks traded lower, as an index of China's services industry declined last month, and did not rise even after Fed reiterated its stand of accommodative monetary policy.

Tuesday - Sensex down by 0.5%, Nifty down by 0.5%, Midcap down by 0.9%
Investors seems to sit out on sidelines as they wait for minutes of Fed meeting and starting of earnings season on Friday which street expects to be weak.

Wednesday – Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.5%
Indian markets recorded their first gain of 2014 as most Asian stocks traded higher after the IMF said it would raise its estimate for global economic growth. Also, the recovery seen in US as their trade deficit narrows augurs well for Indian export stories.

Thursday – Sensex down by 0.1%, Nifty down by 0.1%, Midcap down by 0.8%
Markets closed lower on a day ahead of 3Q earnings season commencement. Street expects results to be weak though slightly better than previous quarter.

Friday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap down by 1.0%
Markets cheered Infosys’ better than expected results and set the IT stocks zooming. The company also raised its FY14 dollar revenue guidance as it sees improvement in US business environment and confidence.

Weekly Market Commentary - Dec 30, 2013 - Jan 3, 2014

First week of 2014 was, to say the least, unexciting. Many investors decided to stay on the sidelines as market lacked any fresh triggers. A speech from our PM promising that his govt. would continue to push reforms, create a favourable FDI climate and will work to generate more employment left most people yawning.

Sensex and Nifty lost 1.6% each while CNX Midcap was down by 0.9% this week.

Monday – Sensex down by 0.2%, Nifty down by 0.4%, Midcap down by 0.3%
The markets were lackluster as investors stayed away because of ongoing holiday season.

Tuesday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.8%
Small gains seen in the index level as cement and oil and gas stocks registered positive movement owing to the bets on turnaround in Indian economy in 2014.

Wednesday – Sensex down by 0.1%, Nifty flat, Midcap up by 0.5%
Sensex recorded a drop on first trading day of 2014. Investors were cautious as govt. data released yesterday showed India's fiscal deficit is now 94% of the annual target. Also, lower growth of 1.7% in index of eight core industries vs. 5.8% previous year added to the bearish sentiment.

Thursday – Sensex down by 1.2%, Nifty down by 1.3%, Midcap down by 2.1%
Strong opening during the early day was hit by bout of profit booking in the second half of the trading day. Weak manufacturing data from China also kept the global sentiment low.

Friday – Sensex down by 0.2%, Nifty down by 0.2%, Midcap up by 0.3%
Markets continued their cautious stance on Friday as low activity in the market with some value buying and rise in tech stocks countering the profit booking and keeping the index range-bound.

Weekly Market Commentary - Dec 23 - Dec 27, 2013

2013 is coming to close. Markets registered a gain on last week of this year as it did in the first week of this year. Highlights of this year were all the noise around QE tapering from US Fed that led to a roller coaster ride for our currency and stock markets. Although, it all turned out to be a whimper but it did give a wakeup call to Indian govt. to get its act together. Add to all this mayhem the cancellation of POSCO and ArcellorMittal plans to setup plants in India, scams, inflation, gang rapes, policy paralysis, rating downgrade warnings and uncertainty around elections. So, there was the ground, seven layers of shit and then us.

Nonetheless, our markets recovered their old glory as Sensex made new highs. Market rejoiced as veterans returned to take care of their broken legacies; stalwarts were appointed to guide our way through fiscal mess, save rupee and general public from scourges of inflation; and anti-corruption wave made way for more business friendly governments and ushered into a new era as a one year old party made people realize that their voices are not unheard.

As many of the above problems have remained unsolved, hope has emerged as country prepares to elect its new leadership in 2014. Let us hope for an even better and interesting 2014.

I wish a very happy and prosperous new year to my readers.

Sensex gained 0.5%; Nifty gained 0.6% while CNX Midcap was up by 2.5% this week.

Monday – Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 1.1%
Upward movement during the first half of the trading day was capped by late selling seen in Infosys, which saw exit of another key management personnel, HDFC, which saw some profit booking after RBI said inflation fighting is still their topmost priority. Market momentum stayed bullish as global indices firmed up though some volatility generally increases near F&O expiry date.

Tuesday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap up by 0.5%
Markets remained choppy as investors stayed cautious ahead of F&O expiry on Dec 26. Global markets also remained range-bound due to light trading activity ahead of holiday season.

Wednesday – Markets closed on occasion of Christmas

Thursday – Sensex up by 0.2%, Nifty up by 0.2%, Midcap up by 0.2%
Trading activity was mute on the F&O expiry day. Axis Bank rallied surged after the Cabinet Committee on Economic Affairs (CCEA) approved proposal to increase foreign investment in the bank from 49% to 62%.

Friday – Sensex up by 0.6%, Nifty up by 0.6%, Midcap up by 0.7%
Market closed the week higher led by gains in export-oriented sectors such as IT and Pharma as US data showed improved recovery in employment situation. Banks and FMCG also gained as street expects inflation data to be lower in January and RBI to maintain status quo on rates.

Weekly Market Commentary - Dec 16 - Dec 20, 2013

Quite a week for Indian markets. With Fed’s tapering decision out of the way and uncertainty related to Indian govt’s stand on KG D6 gas price revision cleared, investors and business got another major sentiment boost from RBI governor who decided not to raise rates even in the midst of rising inflation. Therefore, what resulted is Sensex regaining 21,000 level while focus now shifted to food inflation data, which, if strengthened, may warrant a rate hike from RBI.

Sensex gained 1.8%; Nifty gained 1.7% while CNX Midcap was up by 3.1% this week.

Monday – Sensex down by 0.3%, Nifty down by 0.2%, Midcap up by 0.4%
Sensex failed to gain ground as impending rate hike concerns, post high inflation numbers, have kept the street nervous. Street is widely expecting a repo rate hike of 25bps to 8.00% in Dec 18 policy review. Recent govt data shows that costly vegetables, particularly potato and onion has pushed the November WPI to 7.52% from 7% previous month while CPI has jumped to 11.24% warranting inflation controlling measures from central bank.

Tuesday - Sensex down by 0.2%, Nifty down by 0.3%, Midcap down by 0.1%
Markets traded in the narrow range as investors stayed cautious ahead of RBI policy review meet on Wednesday.

Wednesday – Sensex up by 1.2%, Nifty up by 1.3%, Midcap up by 1.5%
RBI sprung a surprise as it decided to maintain the status quo and left the rates unchanged. Investors’ sentiments turned bullish as RBI governor Raghuram Rajan indicated lowering of inflation in near term due to falling vegetable prices but promised to act if inflation did not subside as expected.

Thursday – Sensex down by 0.7%, Nifty down by 0.8%, Midcap down by 0.4%
There was some selloff as Fed announced $10bn of tapering every month. Neither the selloff nor the tapering decision came as a surprise. Federal Open Market Committee (FOMC) expects that with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline.

Friday – Sensex up by 1.8%, Nifty up by 1.7%, Midcap up by 1.7%
Markets went up as Fed’s QE tapering decision is finally out of its way and as expected did not have major impact on either stocks or currency. Sensex got a major boost as govt. finally cleared Reliance Industries’ demand of higher gas prices while asking them to deposit a guarantee equivalent to any incremental revenue. With this decision, govt has cleared lot of uncertainties in the oil and gas industry and made easier for foreign companies to invest in India.