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.

Bubble Trouble

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

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

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

Time will only tell whether this rally has more legs.

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

If one goes by the direction of the market, it seems that nation (investor populace mostly) has already made up its mind regarding the outcome of Lok Sabha elections. Continuous upward momentum indicates the increasing expectations of a stable NDA government in the centre. NDA govt is widely expected to undo the decade of policy paralysis and junking of pro-growth model of development and replace it with one with more pro-market flavor.

Sensex ended this week up 2.0%, Nifty was up by 1.4% while CNX Midcap was up by 1.8%.

Monday - Sensex up by 0.5%, Nifty up by 0.9%, Midcap up by 0.4%
Markets continued to move up as buying interest emerged in capital goods and banking sector stocks on the back of favorable policy measures and reduced deficit numbers announcements by outgoing UPA govt.

Tuesday - Sensex up by 0.2%, Nifty up by 0.4%, Midcap up by 0.1%
Benchmark indices were able to hold ground after a volatile session as F&O contracts near their expiry on coming Wednesday. The optimism about US recovery led to higher closing of IT stocks.

Wednesday - Sensex up by 0.6%, Nifty down by 1.0%, Midcap up by 0.2%
Sensex regained 21,000 mark as foreign funds continued to flow in Indian equities. Stocks also gained as traders due to short covering on F&O expiry day.

Thursday – Exchanges closed on Maha Shivratri

Friday - Sensex up by 0.6%, Nifty up by 1.1%, Midcap up by 1.2%
Markets closed higher ahead of GDP data release for quarter ending December. A Bloomberg poll showed the growth expectations to be 4.7% as against 4.8% in September quarter. Mood was also positive as Fed Chairperson Janet Yellen indicated that Fed would continue its tapering program in a measured way.