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.

World Wide Web

Excellent infographic by Euromonitor on worldwide web of trades.
Hat tip: The Big Picture

Click on the image to enlarge

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.