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.

Inflation - Persistent Threat

Hat Tip: Livemint

Click on image to enlarge

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 11, 2014 - Aug 15, 2014

A very good week for the markets. Sensex went up by more than 770 points in the span of four trading days. Nomura raised BSE Sensex target to 30,310 by August 2015 citing the cyclical pick-up in growth. UBS maintained its 12-month Nifty target of 8,000 putting a premium on growth potential of the Indian economy especially when it comes out of ruts.

Narendra Modi's decision to do away with Planning Commission has unshackled the Indian states economy from the clutches of last remaining Soviet style institution. I couldn't think of a better way to say Happy Independence Day.

Sensex ended this week up by 3.1% while Nifty was up by 2.9% and Midcap up by 1.6%

Monday - Sensex up by 0.8%, Nifty up by 0.8%, Midcap up by 0.9%
Sensex and Nifty snapped their losing streak and rose nearly 1% on good numbers from stocks such as Mahindra & Mahindra and cooling-off in tensions between Russia and Ukraine. Realty stocks gained after SEBI put its stamp on FM’s decision of setting up of REITs, a widely acclaimed move that will offer a new source of financing to India's cash-strapped property developers and new investment vehicle to the nation.

Tuesday - Sensex up by 1.4%, Nifty up by 1.3%, Midcap up by 0.7%
Investors cheered the Tata Motors results – the firm tripled its quarterly net profit on back of strong JLR sales. Analysts are also upbeat about the overall health of the economy and expect July CPI to rise marginally to 7.40% from 7.31% in June, as per a Reuters’ poll. Also, a poll of 27 economists expects factory output in June to rise by 5.4% y-o-y in comparison with the 4.7% growth in May.

Wednesday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap down by 1.1%
Sensex and Nifty ended the day marginally higher as gains in IT stocks due to weak rupee were offset by decline in capital goods stocks as BHEL’s earnings disappointed the street. Gains were also capped as lenders fell after govt. released July CPI data at 7.96% vs. 7.46% in June.

Thursday - Sensex up by 0.7%, Nifty up by 0.7%, Midcap up by 1.0% 
 Benchmark indices went up as WPI inflation dropped to five-month low level due to moderation in fuel costs and investors prepare for maiden Independence Day speech of PM Narendra Modi. Investors are expecting some key reform related announcements on Friday.

Friday – Exchanges closed on account of Independence Day

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 - July 21, 2014 - July 25, 2014

The earnings season is here. Investors have now moved on from the rhetoric generated from budget session and have now put their noses back to where they should belong – corporate earnings numbers. So far, the government has been playing to the FII gallery and moving fast on their reform agenda – tweaking laws, creating more enabling environment, removing confusions over controversial policies and implementing steps to allow more foreign capital.

In the near term, investors are going to focus on earnings numbers – L&T, Maruti Suzuki, Bharti Airtel and HLL are lined up for next week. RBI policy review on August 5 will also be keenly watched for any macroeconomic commentary and inflation/interest rate signals.

Sensex ended this week up by 1.9% while Nifty was up by 1.7% and Midcap down by 1.9%

Monday - Sensex up by 0.3%, Nifty up by 0.3%, Midcap down by 0.1%
Markets went up led by rally in Reliance Industries after it reported quarterly earnings better than street estimates. In near term, markets will remain driven by corporate earnings as no new trigger is in sight.

Tuesday - Sensex up by 1.2%, Nifty up by 1.1%, Midcap up by 0.1%
Sensex and Nifty surged more than 1% and traded near their all-time highs led by telecom stocks following Idea Cellular's better-than-expected earnings. Bharti Airtel and Idea Cellular both rallied more than 5% as sentiment around telecom stocks improved.

Wednesday - Sensex up by 0.5%, Nifty up by 0.4%, Midcap down by 0.4%
Benchmark Indices continued on their winning run bolstered by gains in IT and banking leaders on upbeat earnings, higher capital inflows and positive global cues. TCS attained a market valuation of over Rs. 5 lakh crores (or about $84bn) for the first time. Bank of Baroda gained around 3% after RBI removed the stock from its caution list, allowing FIIs to invest in it. Jet Airways also rose around 4% after its chairman discussed its restructuring plan involving selling planes and renegotiating debt.

Thursday - Sensex up by 0.5%, Nifty up by 0.4%, Midcap down by 0.2%
Sensex and Nifty rose to their record highs after decision to raise FDI limit in insurance got cabinet approval. Modi government is doing its best to revive foreign interest in India and raising the FDI limit from 26% to 49% in capital starved insurance sector highlights its reform agenda. Cairn India slumped by 7% as company disclosed a related party transaction worth $1.25bn in the form of loan facility to parent Vedanta Group. Analysts have always been wary of this move where the new promoter group might take advantage of cash pile of Cairn India to fund their other projects – a step widely considered detrimental to minority shareholders’ interest.

Friday - Sensex down by 0.6%, Nifty down by 0.5%, Midcap down by 1.3%
Markets took a breather on Friday after continuously rising for nine sessions. Tata Motors declined most in six months after JLR price cuts in China raised concerns on margins in a key market.

Weekly Market Commentary - July 07, 2014 - July 11, 2014

The most anticipated week since the general elections have concluded this Friday with Sensex experiencing a wild swing of more than 1200 points. Markets easily reached the all-time high status on Monday rising on hopes of “game-changing” budget, and ended the week in red after sky high hopes met the ground. To be fair, investors were expecting too much too soon. I will argue that FM did a good job of trying to prepare a solid fiscal ground for future growth. I bet that lot of subsidies would have got the axe if not for the fear of high inflation and weak monsoons. I will still give FM a modest 7/10. You can read my budget analysis here.

Sensex ended this week down by 3.6% while Nifty was down by 3.8% and Midcap down by 8.1%

Monday - Sensex up by 0.5%, Nifty up by 0.5%, Midcap up by 0.2%
Markets continued to roll on the expectations of better earnings expectations from Infosys and hopes of a fiscally prudent budget from Narendra Modi govt. FIIs have bought more than $10.5bn worth of equities so far this year.

Tuesday - Sensex down by 2.0%, Nifty down by 2.1%, Midcap down by 4.3%
Investors’ hopes were dashed as railway budget presented by govt. was devoid of any radical plan to turnaround railways. The budget also lacked specifics about much touted PPP route to raise funding for projects and was short of fresh ideas.

Wednesday - Sensex down by 0.5%, Nifty down by 0.5%, Midcap down by 1.6%
Markets continue to fall after railway budget turned out to be a bummer. Economy survey also highlighted the need for tough measures to shore up public finances and reduce inflation, raising expectations of a prudent and a non-populist budget.

Thursday - Sensex down by 0.3%, Nifty down by 0.2%, Midcap up by 0.6%
Budget day saw wild swings in the Sensex and Nifty levels. Investors were struggling to get a handle over the slew of measures announced by newly appointed FM. While the budget speech nailed the fiscal consolidation part, it lacked any growth stimulating measures, which spooked the markets, which ended the eventful day in red.

Friday - Sensex down by 1.4%, Nifty down by 1.4%, Midcap down by 3.2%
Markets continued to fall as investors booked profits amidst the disappointment over what few analysts call a “mile wide and inch deep” budget. With budget now out of the way, investors have trained their guns on global markets, earnings season and monsoon.

Weekly Market Commentary - June 30, 2014 - July 04, 2014

Sensex ended this week up by 3.4% while Nifty was up by 3.2% and Midcap up by 5.2%

Monday - Sensex up by 1.3%, Nifty up by 1.4%, Midcap up by 2.2%
Markets closed the first quarter of fiscal year 2015 with a 13.5% gain, recording the best quarterly gain for Sensex since second quarter of FY2010. All recent gains made by the stock markets are attributed to Narendra Modi led BJP govt with its economic reform agenda coming into power.

Tuesday - Sensex up by 0.4%, Nifty up by 0.3%, Midcap up by 0.6%
Sensex and Nifty rose again as auto companies such as Maruti Suzuki India surged after reporting stronger monthly sales. HSBC also released its PMI index data that indicated slight gain to 51.5 in June from 51.4 in May.

Wednesday - Sensex up by 1.3%, Nifty up by 1.2%, Midcap up by 1.6%
Both Sensex and Nifty surged again after FM called for more fiscal prudence and warned against mindless populism. FM tried to reinstall the confidence in his govt with a reminder that inflation and high fiscal deficits are his main targets and challenges.

Thursday - Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.1%
Markets took a breather after four consecutive closing in green. Both Sensex and Nifty declined slightly with a technical snag on BSE halting the trading for three hours.

Friday - Sensex up by 0.5%, Nifty up by 0.5%, Midcap up by 0.5%
Markets ended this week in positive territory as investors brace for budget session on July 10. Lot of money – both domestic and foreign is riding on the expectations that PM and FM will deliver a credible and fiscally prudent budget and will have catalysts to revive the Indian economy.

Weekly Market Commentary - June 23, 2014 - June 27, 2014

Recent news events have brought back to my mind the quote from bible, which I am paraphrasing here for purpose of my article – “The Govt. giveth and the Govt. taketh away”. This week started with health ministry’s proposal to raise taxes on cigarettes which took its toll on ITC share. Then, Food ministry moved in to provide relief to mill owners and the farmers they owe money to (in tune of $1.3bn) by raising the import duty. The week ended with FM extending excise duty concessions to auto, capital goods and consumer sector. But the relief to the investors ended soon as govt. deferred the gas price hike by another three months.

As we all know, the next catalyst is new govt.’s budget on July 10. All eyes are on FM now. Investors are cautious as markets is looking at a pro-growth and reform budget. On July 10, it will be clear to everyone how new FM has managed between subsidies, taxation, inflation, rising crude oil prices, threat of weaker monsoon and El-Nino (read about it here).

Sensex and Nifty ended this week flat while Midcap up by 2.7%

Monday - Sensex down by 0.3%, Nifty down by 0.2%, Midcap up by 0.7%
Sensex and Nifty continue to trade lower led by ITC, which declined by more than 6% - most in ten months when health minister muted the idea of raising taxes on cigarettes. The worry over Iraq crisis has not abetted and Brent crude continue to hover around $115 a barrel. On the other hand, govt.’s move to raise import duty on imports from 15% to 40% led to rally in sugar stocks.

Tuesday - Sensex up by 1.3%, Nifty up by 1.2%, Midcap up by 1.6%
Sensex and Nifty continue to trade lower led by ITC, which declined by more than 6% - most in ten months after health minister muted the idea of raising taxes on cigarettes. The worry over Iraq crisis has not abetted and Brent crude continue to hover around $115 a barrel. Govt.’s move to raise import duty on imports from 15% to 40% led to rally in sugar stocks.

Wednesday - Sensex down by 0.2%, Nifty down by 0.1%, Midcap up by 0.4%
Sensex and Nifty fell again as rising crude oil worries, deficient monsoon add to the expectation of higher inflation in near term. There was a brief rally in auto stocks after FM extended excise duty concessions to the sector.

Thursday - Sensex down by 1.0%, Nifty down by 1.0%, Midcap down by 0.5%
Benchmark indices ended lower led by upstream oil and gas companies after govt.’s move to defer the gas price hike for the next three months. However, capital goods and auto stocks gained after govt. extended excise duty concessions for automobiles, consumer and capital goods by six months to Dec. 31. Also, overseas investors sold shares worth INR6.0bn ($101mn) on Thursday, marking their biggest single day of sales since Mar 10.

Friday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.4%
Sensex and Nifty gained slightly as Sun Pharma jumped on the U.S. regulator's approval for a key drug while IT stocks gained after Accenture reported robust quarterly revenue growth. Gail India declined by 0.7% after a blast at a gas pipeline in Andhra Pradesh killed 14 people and injured 20 rising concerns over safety of gas infra all over country.

El Niño - Spoiler Alert!

It goes without saying that Indian growth story is strongly dependent on rainfall. Any shortfall, and we all scramble for places to hide from resulting high prices of agri commodities.

To make matters worse, a recent forecast that El Niño weather phenomenon, has a 90% chance of striking this year, can cause trouble for India. Rise in prices due to drought conditions (deficient water supply, lower crop output) in many areas led to riots in several countries in 2007.

As you can see in the graphic below, that India will suffer a dry spell with weaker monsoon rains but US will get a relief from drought in the west.

Click image to enlarge

The latest prediction is from European Centre for Medium-range Weather Forecasts, which is one of the most reliable of prediction centres around the world.

They have clarified that the amount of warm water in the Pacific is perhaps the biggest since the 1997-98 event which led to hottest year on record at that time.

The picture will become clearer in a month or two whether this year’s El Niño will be a small or a major event.

Weekly Market Commentary - June 16, 2014 - June 20, 2014

According to the Ministry of Oil and Natural Gas, India imported about 13% of its crude oil requirements from Iraq last year and this year was planning to take that figure to 20%. Iraq is the second largest crude producer in the OPEC group. With only half of the supplies covered so far, India has to rush to other players to secure oil – likely at higher prices now. According to one govt. estimate, oil price can rise to $120 per barrel for several months and may hit the govt. budget by atleast $3.3bn.

Sensex ended this week down by 0.5% while Nifty was down by 0.4% and Midcap down by 0.7%

Monday - Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.4%
Sensex and Nifty continue to trade lower as Iraq crisis weigh on investor’s mind. Brent rose to $113 per barrel, a nine-month high as ISIS strengthens its position in Iraq. Rise in crude prices coupled with weak monsoon can spell trouble for India. WPI for May came in about 6% - five month high due to higher food and fuel costs.

Tuesday - Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.3%
While rising oil prices has put Indian finance ministry in a difficult position, such is not the case with oil and gas companies. Indian upstream sector gained as investors lapped up shares on expectations of margin expansion. Sentiment on the street remained positive with investors buying in every decline.

Wednesday - Sensex down by 1.1%, Nifty down by 1.0%, Midcap down by 0.9%
Rising crude prices seems to make everybody apart from upstream companies very nervous. Sensex and Nifty slumped again as rising crude prices raised concerns about higher inflation and govt.’s finances. Rising crude prices have also hushed the chatter about interest rate cuts.

Thursday - Sensex down by 0.2%, Nifty down by 0.2%, Midcap down by 0.7%
Oil and Gas stocks slumped on concerns that India may allow higher gas prices only for incremental output from existing fields. Brent crude also hit a further high of $115 per barrel as fighting intensifies in Iraq.

Friday - Sensex down by 0.4%, Nifty down by 0.4%, Midcap down by 0.7%
Sensex and Nifty continued to trade lower as investors continued to focus on Iraq issue in short term. Market is expecting major reforms in the first budget of Modi govt. but situation in Iraq has made things little difficult with rising crude prices feeding into higher inflation and deficits.

Weekly Market Commentary - June 9, 2014 - June 13, 2014

Friday slump in markets due to rising oil prices amid continued violence in Iraq may jeopardize the best laid plans of Modi govt. Not only the rising crude oil prices will have debilitating effect on subsidies, it will also let in more inflation.

All this will tie FM’s hands who wants to install some sort of fiscal tightening and do away with lot of welfare schemes. Any attempt to clamp down welfare spending during rising inflation environment may not go down well with general public.

Sensex ended this week down by 0.7% while Nifty was down by 0.5% and Midcap down by 2.8%

Monday - Sensex up by 0.7%, Nifty up by 0.9%, Midcap up by 1.1%
Sensex and Nifty continued their ride up as anticipation of reforms build up. Some rally was seen in fertilizer stocks after govt disclosed plans to raise the price of urea by at least 10%.

Tuesday - Sensex and Nifty unchanged while Midcap down by 0.5%
Indices took a breather as investors booked profits in recently rallied names. Yet, the sentiment on the street remain bullish as market heads into first budget of Narendra Modi govt in first week of July.

Wednesday - Sensex down by 0.4%, Nifty down by 0.4%, Midcap down by 1.2%
Markets snapped after touching all time highs. Investors booked profits in infrastructure and capital goods stocks which has outperformed recently. FIIs continued to show confidence in Indian equities and bought $115.2mn worth of shares on Tuesday.

Thursday - Sensex up by 0.4%, Nifty up by 0.3%, Midcap up by 0.5%
Sensex and Nifty showed some gains in anticipation of positive economic data release later in the day. A Reuters survey found economists expecting CPI easing to 8.4% in May vs. April number of 8.59%.

Friday - Sensex down by 1.4%, Nifty down by 1.4%, Midcap down by 2.6%
Rising violence in Iraq led to scare in the market with crude oil rising to its nine-month high taking a toll on Indian stocks also. Sensex and Nifty both slumped 1.4% as investors fear rise in subsidies and trade deficits if high crude oil price persists. There was a bit of positive news from the economy as industrial growth rebounded. Retail inflation also dropped to 8.4%, a three-month low - signs of an economic revival that could offset the threat of patchy summer rains.

Weekly Market Commentary - May 26, 2014 - May 30, 2014

Elections are over. New govt is in place. The country is in midst of (sort of) growth crisis. Time has come for govt to roll up its sleeve.

Asia’s third largest economy grew 4.7% in FY14 vs. estimated 4.9% - second quarter of sub 5% growth. It is estimated that projects worth $105.1bn were shelved last year due to bureaucratic gridlock - highest in the past 18 years. Stressed loans in India amounted to $100bn or about 10% of all loans when debt-equity ratio of Indian firms has hit a two-decade high of 97.9%, according to Nomura.

Add to the mix, slowing global economy that is hemming in the country's exports growth and prospects of bleak monsoon, which might fire up the inflation fury. All these would lead to central bank staying hawkish on interest rates.

Sensex ended this week down by 1.9% while Nifty was down by 1.9% and Midcap down by 3.0%

Monday - Sensex up by 0.1%, Nifty down by 0.1%, Midcap down by 2.0%
Investors booked profits as BSE Sensex and CNX Nifty, two key benchmark indices loses steam. Midcaps declined by 2% after gaining more than 10% previous week. Recovery hopes from Modi govt have kept markets at elevated levels in recent weeks. Sun Pharma and Ranbaxy gained after court lifted a temporary stay on their merger.

Tuesday - Sensex down by 0.7%, Nifty down by 0.6%, Midcap down by 1.0%
Markets continue to tumble as investors continued to book some profits and turned cautious as they wait for new policies to be announced and implemented from PMO. Newly appointed finance minister Arun Jaitley assured investors of stable policy environment.

Wednesday - Sensex flat, Nifty up by 0.2%, Midcap up by 0.6%
Sensex ended the day flat while Nifty went up slightly as some value buying occurred on bourses after recent correction. Shipping corp surged 14% after company reported first net profit after Sept 2012 quarter as bulk shipping and liner businesses improved. ICRA also jumped 18% after Moody’s raised offer price to Rs. 2,400/share from Rs. 2, 000/share.

Thursday - Sensex down by 1.3%, Nifty down by 1.3%, Midcap down by 0.9%
Sensex and Nifty posted their biggest decline in nearly four months on the day of derivative expiry. This goes on to indicate that Modi euphoria might be showing sign of ebbing and investors will focus on actual deliverance now. Losses in blue chips were led by Infosys, which fell by 8% after it saw exit of another top management official from the company.

Friday - Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.3%
Investors continued to stay low as election rally loses momentum. Sensex and Nifty ended the week in red marking the first weekly fall over last one month.

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 28, 2014 - May 2, 2014

This one should be a quick one. Electricity woes made a big comeback in Ghaziabad. And we had two days of trying to conserve as much (power) we can – by stressing our invertor as little as possible. So, I had to delay my writing of this commentary and now I am doing it from my office so I should make this one quick.

All eyes are on results of general election to be announced on May 16. Market in short term will continue to be swayed by earnings results, inflation and other official economic stats released by govt – unless ofcourse Ukraine crisis turn into a major one. US has already put its economic (powerhouse) machine in motion – building pressure on Russia by way of sanctions. Let’s hope it does not escalate into something bigger and dangerous.

Sensex and Nifty ended this week down by 1.3% while Midcap was down by 0.8% 

Monday - Sensex slightly down by 0.2%, Nifty down by 0.3%, Midcap up by 0.7%
Cautious sentiment prevailed in the market as ongoing results season till date has shown increase in topline growth but decline in operating margins. Add to the mix the uncertainty of election outcome and you get a heady cocktail of increasing volatility. Investors also remained wary ahead of the U.S. Federal Reserve's two-day meet starting Tuesday, coming at a time of continued tensions between Russia and the West over Ukraine.

Tuesday – Sensex and Nifty down by 0.7%, Midcap down by 0.6%
Key benchmark indices closed lower as investors continued to book profits. Slowdown in capital inflows and MET forecast of below average rainfall continues to weigh on investors’ mind.

Wednesday - Sensex down by 0.2%, Nifty down by 0.3%, Midcap down by 1.3%
No change in sentiment visible on the street. Continues to be weighed down by global cues (read Ukraine crisis) and domestic uncertainties related to earnings season and elections.

Thursday – Markets closed on Maharashtra Day

Friday - Sensex slightly down by 0.1%, Nifty flat, Midcap up by 0.5%
Sensex and Nifty both continued their falling trend as profit booking increases and indices failed to attract fresh buying. All eyes are on outcome of general elections now.

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 - Apr 7, 2014 - Apr 11, 2014

India continues to benefit from lack of alternatives in emerging market space as I already mentioned in my earlier post. Due to limited options, FIIs are pouring money into Indian markets giving the economy disproportionate share of the EM flows.
It remains to be seen for how long this situation will continue. But till then..party ho ri bahut bhayankar! :)

Sensex ended this week up by 1.2% while Nifty was up by 1.2% and Midcap up by 2.5%

Monday - Sensex slightly down by 0.1%, Nifty flat, Midcap down by 0.3%
Benchmark indices closed slightly down as country begins voting for formation of new govt at the centre. Some investors booked profits as Sensex and Nifty breached new record levels in days approaching elections. Sun Pharma leads the gainers on Sensex as company announced its purchase of Ranbaxy in total equity deal of $3.2bn. There was some action seen in cement stocks also after Swiss company Holcim, which holds more than 50% stake in ACC and Ambuja cements announced merger with France’s Lafarge. The combined entity will become the largest cement maker in India.

Tuesday – Markets closed on Ram Navmi

Wednesday - Sensex up by 1.6%, Nifty up by 1.5%, Midcap up by 1.6%
Markets surged to a new high after a brief pause and a break in beginning of the week. Sun Pharma rose by more than 7% as brokers rushed to upgrade the stock after Ranbaxy buy. Most interest rate sensitive stocks gained as investors expects more benign inflation scenario in near term.

Thursday - Sensex up slightly by 0.1%, Nifty flat, Midcap up by 1.2%
BSE Sensex ended slightly higher as gains were capped by profit booking seen in IT stocks as earnings season commences from Apr 15. In addition, investors are cautious ahead of release of IIP data. Other Asian bourses also saw some selling as US markets ended lower on concerns of high valuation of some tech stocks.

Friday - Sensex down by 0.4%, Nifty down by 0.3%, Midcap down by 0.1%
Key Indices closed lower as investors prepares for earnings season and release of inflation data next week. Govt data released on Friday showed the trade deficit widening to $10.5bn in March from $8.1bn in Feb due to lower exports.

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

Indian markets continued to have volatile sessions ahead of Indian elections due to lack of any other strong catalysts. US Federal Reserve attempts to increase short-term interest rates sooner than expected led to markets around the globe moving nervously. Any decline in interest spread between US and emerging markets may lead to decline in potential opportunities for yield-searching investments.

Sensex ended this week down 0.3%, Nifty was down by 0.2% while CNX Midcap was up by 1.3%.

Monday – Markets closed on occasion of Holi

Tuesday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 1.3%
Benchmark indices rose to their records highs but retreated later to settle almost flat. FIIs continue to put money in Indian blue chips ahead of Indian general elections. A small improvement in the industrial output and further lowering of inflation has also added to the positive mood on the street.

Wednesday - Sensex flat, Nifty up by 0.1%, Midcap up by 0.2%
Investor sentiment was subdued ahead of US Fed meeting later in the day. IT major TCS joined Infosys in flagging concerns about revenue growth in near term and indicated that growth could be weaker than previous quarters, which led to some profit booking in IT stocks.

Thursday - Sensex down by 0.4%, Nifty down by 0.6%, Midcap down by 0.8%
Stocks ended lower as Fed chairperson Janet Yellen hinted at raising interest rates sooner than expected and will affect the yield seeking investments. Indian capital goods, financial, auto and all other interest rate sensitive stocks ended the day lower.

Friday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.6%
Benchmark indices continued their positive momentum but ended the week only a tad higher on last day of the week.

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

Indian markets reported a weekly loss after ending three consecutive weeks in green. As expected, markets continued to stay volatile ahead of the elections, with somewhat positive momentum. It has been almost six months the key benchmark index, sensex trading above 20k level.

RBI review meeting on Apr 1 will be next key catalyst investors are focusing on. If RBI managed to cut rates, we may expect some more rally in cyclical especially banks and capital goods.

Sensex ended this week down 0.5%, Nifty was down by 0.3% while CNX Midcap was down by 0.9%.

Monday - Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.5%
Markets continued their positive momentum and sensex traded above 22,000 level for a while and closing at its new record high. Investors continued to show interest in cyclicals while defensives act as source of funds. Market is expected to stay volatile in days ahead of the election with a focus on economic data release on trade deficit, IIP, CPI and WPI in the near term.

Tuesday - Sensex down by 0.5%, Nifty down by 0.4%, Midcap down by 0.3%
Profit booking across the sector led to benchmark indices losing some ground. The fall in trade deficit failed to bring cheer to the market as the data showed decline in exports. The trade deficit lowered to $8.13bn in Feb, which is lowest in past five months.

Wednesday - Sensex up by 0.1%, Nifty up by 0.1%, Midcap down by 0.4%
Markets closed at almost flat as investors keenly await inflation data release. Inflation and industrial output data are key determinants of RBI interest rate policy that will be up for discussion on April 1.

Thursday - Sensex down by 0.4%, Nifty down by 0.4%, Midcap down by 0.7%
Benchmark indices climbed to their highs as govt releases inflation stats. Feb WPI inflation declined to 4.68% vs. 5.05% in Jan due to fall in vegetable and fuel prices. However, markets quickly gave up their gains as IT stocks declined after Infosys painted beak future of its business outlook. China’s missing of its industrial growth and retail sales target also add to the selling pressure in the markets.

Friday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap flat
Indian markets traded weaker during most of the day like their asian and European counterparts on fears that China may be slowing down and standoff on Ukrain may continue or even escalate. But value buying in key sensex and nifty stocks during the end of the day led the benchmark indices closing in the green.

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

Both Sensex and Nifty ended this week at record all time highs. Investors, both domestic and foreign, are rushing in Indian markets to position themselves to benefit from an expected favorable election outcome. As I mentioned in my previous post, that favorable outcome is formation of stable NDA govt at the centre. With Congress losing its fight to retain prominence and AAP continues to use reality TV gimmicks to attract voters, NDA stock continues to rise.

As far as economics is concerned -- With India outperforming most of its emerging market peers in Feb, inflation declining, deficit numbers at four-year low and GDP growth bottoming out, India is definitely at a sweet spot.

Markets are expected to remain volatile in near term, as some people will book profits as markets rise while others will position themselves to benefit in a pre-election rally.

Sensex ended this week up 3.8%, Nifty was up by 4.0% while CNX Midcap was up by 4.1%.

Monday - Sensex down by 0.8%, Nifty down by 0.9%, Midcap down by 0.4%
War mongering in Ukraine sent investors’ mood around the world rolling down. World leaders unite in censuring the Russia’s move to send the forces in Crimea. Gold went up as fear and uncertainty rose. Indian markets ignored the improvement in HSBC PMI index – 52.5 in Feb vs. 51.4 in Jan, which indicated strongest manufacturing growth in last 12 months.

Tuesday - Sensex up by 1.3%, Nifty up by 1.2%, Midcap up by 1.3%
Benchmark indices bounced to their five-week highs as Russian President called back its troops back to their bases. Almost all sectoral indices ended up in green with cyclical leading the rally.

Wednesday - Sensex up by 0.3%, Nifty up by 0.5%, Midcap up by 1.4%
Markets continued their upward momentum. The benchmark Sensex closed just around 100 points away from its previous all time high. Investors have turned bullish ahead of general elections and have largely ignored the weakness in European markets.

Thursday - Sensex up by 1.1%, Nifty up by 1.1%, Midcap up by 1.4%
Benchmark indices soared past their earlier peak and set new record highs on the back of strong bullish investor sentiment as current account deficit numbers came at four-year low. With December CAD at 0.9% of GDP, exports picking up and gold imports subdued market is hopeful that the rupee will get a boost and FII inflows will increase.

Friday - Sensex up by 1.9%, Nifty up by 2.0%, Midcap up by 0.4%
Markets extended their winning streak and ended the week with all time record highs on the back of lower CAD numbers and increased fund flows from both domestic and foreign investors. Almost all indices ended the week in green barring IT and healthcare as investors churn their portfolios from export driven to domestic cyclical stories.