Dr. Raghuram Rajan (RRR): Recent readings suggest that headline inflation, both retail and wholesale, have increased mainly, but not exclusively on account of food prices. There is, however, reason to wait before determining the course of monetary policy. There are indications that vegetable prices may be turning down sharply. RBI has decided to maintain the status quo.
Reserve Bank will be vigilant and will act if expected softening of food inflation does not materialize and it does not translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall.
Gautam Rajesh Kumar, Trust Financial Consultancy: Given the fact that stability in Forex market has returned, CAD has come down, liquidity in the banking system is relatively comfortable, what is the comfort level of inflation for RBI to act on policy rate?
RRR: At this point trying to specify a final target is probably premature, but we do want to see both headline and core inflation come down. So we are also interested in seeing headline inflation which includes the food and fuel component also stabilise and fall.
Srinivasa Varadarajan, Mount Nathan Capital Management: In 1QCY14, it is estimated that about $15 billion of the oil swap will mature and will increase the rupee liquidity in the system. Will the period be used to actually push through the government debt swap at that point in time.
RRR: Actually the net amount is less than $7 billion right now. So that is approximately what will have to be repaid overtime. As and when the time comes, we will take a view as to how that repayment happens and it could be settled through an exchange of rupee funds based on the settlement amount. It could also be, the swaps could be rolled over if necessary and of course if market conditions permit, it can also be repaid.
Namrata Narkar, IDBI Bank: WPI inflation forecast is being placed largely between 6% and 7% for March 2014. How much of deviation from this forecast is tolerable and if the deviation is above the tolerable level, would the composition of such a deviation then hold significant?
RRR: It depends on not just the WPI, but a whole set of other measures. On the WPI we have been very clear on bringing headline below 5 and core below 3.
Prasanna, ICICI Securities: You have mentioned the negative output gap as a key factor in helping to contain inflation. Does that mean you do not expect the output gap to narrow in coming quarters and therefore you expect FY15 growth to remain around levels observed in H1FY14?
RRR: My personal sense is that with growth at let us say around 5%, we have somewhere between 1.5%-2% output gap at this point. So with that kind of situation, I think it will take a year or two to get back to potential and therefore we have some room or some time in which the output gap will continue to be negative and exert downward pressure on inflation.
Badri Niwas, Citi Bank: Given you have the experience of July, would you give some guidance to the market on whether the RBI will again use monetary policy tools as a defence for the currency in event of disruption risk that you mentioned manifesting?
RRR: There are some people who argue the disruption this time will be more limited, partly because people have already reacted somewhat over the last 3-4 months. And from India’s perspective, we are in a better position because a) our CAD is much more contained, b) our reserves have grown and we have shown an ability to raise funding if necessary and c) We have lost a fair amount in short maturity bond funds which have the ability to leave more quickly and what remains are the longer term funds.
Anjali Verma, PhillipCapital: RBI is in favour of removing gold import restrictions. Is it the right time to the remove restrictions and what adverse impact it can have on CAD.
RRR: Gold restrictions are distortion and they are a necessary distortion at this point to restore balance to the CAD. But going forward we would not like this distortion to persist and we would like to remove it.
Ashish Kela, Birla Sun Life Asset Management: Dr. Rajan had highlighted the need to provide real returns to savers. What is the plan on this front? Will this play a role in the monetary policy?
RRR: The question of providing real returns to savers is very much on our minds. We do want to restore savings growth and move towards financial savings by households and I think we have to bring inflation down to make sure that these returns are positive. In the meantime there are stop gap arrangements that are part of a longer term strategy. One example of that is inflation indexed bonds in which real returns are fixed at1.5%.
Rajeev Malik, CLSA: Given widespread macro level demand supply imbalances, what is the efficacy of a blunt instrument such as interest rate in loading CPI core inflation in the supply constrained economy?
RRR: Some of the areas where we had high inflation- pulses and milk- some of that inflation has come down considerably which means there is a supply response that is kicking in and higher prices are a way to activate that supply response. More generally, even in a situation where there are supply constraints of one kind or the other, to the extent that demand exceeds supply, it creates inflationary pressures, some of it is a necessary price adjustment or relative price adjustment, but some of it feeds into more widespread wage inflation.
Aastha Gudwani, Birla Sun Life: Are we done with the rollback of exceptional measures taken in July, is the cap on LAF here to stay? If yes, then how do you intend to reinstate repo as the permanent operative rate?
RRR: We have ample liquidity and we are largely, with a little bit of volatility, near about the repo rate as being the operational rate. So in that sense I think we have gone back to normal monetary policy at this point.
Friday, December 20, 2013
Sunday, November 24, 2013
Weekly Market Commentary - Nov 18 - Nov 22, 2013
Fed’s tapering stayed the talk of the town as markets look exhausted due to lack of any domestic or global cues. The question of will they cut or will not and when continues to linger over the market’s direction.
Sensex lost 0.9%, Nifty lost 1.0% and CNX Midcap was down by 0.9% this week.
Monday – Sensex up by 2.2%, Nifty up by 2.2%, Midcap up by 1.3%
Market continued to rally after Janet Yellen new chair of Fed Reserve allayed fears over QE tapering. Also, RBI governor Rajan’s statement to have an accommodative liquidity stand strengthened the rupee and boosted the investor sentiment.
Tuesday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap flat
Lack of catalysts in the domestic markets makes sure that any rally or euphoria is short lived. Markets were flat as investors stayed cautious and booked profits.
Wednesday – Sensex down by 1.2%, Nifty down by 1.3%, Midcap down by 0.6%
Sensex floundered due to lack of any domestic or global cues. Investors booked profits in banking, IT and capital goods as market sees no new investment and project been announced till the elections are concluded in May.
Thursday – Sensex down by 2.0%, Nifty down by 2.0%, Midcap down by 1.7%
Release of minutes of Federal Open Market Committee (FOMC) meet spooked the investors globally as it indicated tapering might began in next few months, if economy improves. Fed’s doublespeak is confusing the markets as previous week they indicated any tapering is still far away.
Friday – Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.1%
Markets continued to stay cautious as Fed’s comments on tapering confused the investors.
Sensex lost 0.9%, Nifty lost 1.0% and CNX Midcap was down by 0.9% this week.
Monday – Sensex up by 2.2%, Nifty up by 2.2%, Midcap up by 1.3%
Market continued to rally after Janet Yellen new chair of Fed Reserve allayed fears over QE tapering. Also, RBI governor Rajan’s statement to have an accommodative liquidity stand strengthened the rupee and boosted the investor sentiment.
Tuesday - Sensex up by 0.2%, Nifty up by 0.2%, Midcap flat
Lack of catalysts in the domestic markets makes sure that any rally or euphoria is short lived. Markets were flat as investors stayed cautious and booked profits.
Wednesday – Sensex down by 1.2%, Nifty down by 1.3%, Midcap down by 0.6%
Sensex floundered due to lack of any domestic or global cues. Investors booked profits in banking, IT and capital goods as market sees no new investment and project been announced till the elections are concluded in May.
Thursday – Sensex down by 2.0%, Nifty down by 2.0%, Midcap down by 1.7%
Release of minutes of Federal Open Market Committee (FOMC) meet spooked the investors globally as it indicated tapering might began in next few months, if economy improves. Fed’s doublespeak is confusing the markets as previous week they indicated any tapering is still far away.
Friday – Sensex down by 0.1%, Nifty down by 0.1%, Midcap up by 0.1%
Markets continued to stay cautious as Fed’s comments on tapering confused the investors.
Sunday, November 17, 2013
Weekly Market Commentary - Nov 11 - Nov 15, 2013
Global markets continue to anchor on central governors’ announcements for directions. This anchoring is making many market participants nervous. As results season nears its end in India, market is struggling to find any catalyst to move up. And as we know, when indices are not moving up, they are moving down. Can’t stay confused/range bound/flat or in inaction for long.
Sensex lost 1.3%, Nifty lost 1.4% and CNX Midcap was down by 1.1% this week.
Monday – Sensex down by 0.8%, Nifty down by 1.0%, Midcap down by 0.9%
Continuing weakness in rupee had its effect on investors. Investors continue to stay cautious as September IIP and October retail inflation numbers are due for release tomorrow.
Tuesday - Sensex down by 1.0%, Nifty down by 1.0%, Midcap down by 1.0%
Although market consensus indicates a recovery in IIP at 3.6% in September vs. 0.6% in August, it is the retail inflation, which is causing nervousness among the participants. Street expects CPI for October to be at 10% vs. 9.84% previous month. Also, car sales, considered by investors as a signal of consumer sentiment, provided little cheer with domestic sales declining 3.9% in October.
Wednesday – Sensex down by 0.4%, Nifty down by 0.5%, Midcap down by 0.7%
Street was little disappointed as IIP numbers came in lower at 2% for September vs 3.6% consensus while CPI was on higher side with rise of 10.09% in October. Investors have again started speculating a rate hike in coming December 18 meeting of the RBI.
Thursday – Sensex up by 1.0%, Nifty up by 1.1%, Midcap up by 1.5%
Markets cheered the Janet Yellen’s statement that US economy is still underperforming and Fed will continue its liquidity support for some more time. Janet Yellen is set to replace Ben Bernanke as Federal Reserve Governor soon.
On domestic front, Raghuram Rajan again sprung back to action and soothes the nerves of the investors with announcement of 8,000 crores of bond buying program to infuse liquidity in the system.
Friday – Markets closed on occasion of Muharram
Sensex lost 1.3%, Nifty lost 1.4% and CNX Midcap was down by 1.1% this week.
Monday – Sensex down by 0.8%, Nifty down by 1.0%, Midcap down by 0.9%
Continuing weakness in rupee had its effect on investors. Investors continue to stay cautious as September IIP and October retail inflation numbers are due for release tomorrow.
Tuesday - Sensex down by 1.0%, Nifty down by 1.0%, Midcap down by 1.0%
Although market consensus indicates a recovery in IIP at 3.6% in September vs. 0.6% in August, it is the retail inflation, which is causing nervousness among the participants. Street expects CPI for October to be at 10% vs. 9.84% previous month. Also, car sales, considered by investors as a signal of consumer sentiment, provided little cheer with domestic sales declining 3.9% in October.
Wednesday – Sensex down by 0.4%, Nifty down by 0.5%, Midcap down by 0.7%
Street was little disappointed as IIP numbers came in lower at 2% for September vs 3.6% consensus while CPI was on higher side with rise of 10.09% in October. Investors have again started speculating a rate hike in coming December 18 meeting of the RBI.
Thursday – Sensex up by 1.0%, Nifty up by 1.1%, Midcap up by 1.5%
Markets cheered the Janet Yellen’s statement that US economy is still underperforming and Fed will continue its liquidity support for some more time. Janet Yellen is set to replace Ben Bernanke as Federal Reserve Governor soon.
On domestic front, Raghuram Rajan again sprung back to action and soothes the nerves of the investors with announcement of 8,000 crores of bond buying program to infuse liquidity in the system.
Friday – Markets closed on occasion of Muharram
Saturday, November 9, 2013
Weekly Market Commentary - Nov 4 - Nov 8, 2013
Markets struggled to find ground as Diwali euphoria dies out. In addition, returning of oil companies to source their dollar requirements from market got the rupee falling again, which worried the investors.
Global investors remained nervous over what continues to be their single most important concern: Will there be talks of Fed tapering or not in the next meeting.
Markets lost all the gains they made previous week. Sensex lost 2.5%, Nifty lost 2.6% and CNX Midcap was down by 0.3% this week.
Monday – Markets closed on occasion of Balipratipada
Tuesday - Sensex down by 1.2%, Nifty down by 1.0%, Midcap up by 0.6%
Markets closed down as India’s service sector activity, as measured by HSBC / Markit purchasing managers index, contracted for fourth successive month as economic uncertainty continues. The index improved to 47.1 in October from 44.6 in September but continued to stay below 50, which indicates contraction.
Wednesday – Sensex down by 0.4%, Nifty down by 0.6%, Midcap down by 0.1%
Investors are treading cautiously as S&P warned that it might downgrade India’s credit rating if next government fails to chart out a path to bring back the country to high growth. S&P currently has 'BBB-/A-3' sovereign credit rating on India with negative outlook. The rating major will conduct its next review after the general elections, which are due by May 2014; unless the country's fiscal or external standing deteriorates.
Thursday – Sensex down by 0.3%, Nifty down by 0.4%, Midcap down by 1.4%
Markets continued to stay range bound as oil companies return to market for their dollar requirements, which had got investors worried over depreciation in rupee. Any further depreciation in rupee may affect FIIs inflow in the domestic markets.
Friday – Sensex down by 0.8%, Nifty down by 0.8%, Midcap down by 0.1%
Markets continued to stay under pressure, as recent depreciation in rupee value brings back the inflation worries. Rise in inflation or inflation expectations may prompt RBI governor to hike rates again raising the cost of doing business in already reeling economy.
Investors were also cautious ahead of Fed meeting as improving US economic conditions fuelled the talks of tapering by US Federal Reserve.
Global investors remained nervous over what continues to be their single most important concern: Will there be talks of Fed tapering or not in the next meeting.
Markets lost all the gains they made previous week. Sensex lost 2.5%, Nifty lost 2.6% and CNX Midcap was down by 0.3% this week.
Monday – Markets closed on occasion of Balipratipada
Tuesday - Sensex down by 1.2%, Nifty down by 1.0%, Midcap up by 0.6%
Markets closed down as India’s service sector activity, as measured by HSBC / Markit purchasing managers index, contracted for fourth successive month as economic uncertainty continues. The index improved to 47.1 in October from 44.6 in September but continued to stay below 50, which indicates contraction.
Wednesday – Sensex down by 0.4%, Nifty down by 0.6%, Midcap down by 0.1%
Investors are treading cautiously as S&P warned that it might downgrade India’s credit rating if next government fails to chart out a path to bring back the country to high growth. S&P currently has 'BBB-/A-3' sovereign credit rating on India with negative outlook. The rating major will conduct its next review after the general elections, which are due by May 2014; unless the country's fiscal or external standing deteriorates.
Thursday – Sensex down by 0.3%, Nifty down by 0.4%, Midcap down by 1.4%
Markets continued to stay range bound as oil companies return to market for their dollar requirements, which had got investors worried over depreciation in rupee. Any further depreciation in rupee may affect FIIs inflow in the domestic markets.
Friday – Sensex down by 0.8%, Nifty down by 0.8%, Midcap down by 0.1%
Markets continued to stay under pressure, as recent depreciation in rupee value brings back the inflation worries. Rise in inflation or inflation expectations may prompt RBI governor to hike rates again raising the cost of doing business in already reeling economy.
Investors were also cautious ahead of Fed meeting as improving US economic conditions fuelled the talks of tapering by US Federal Reserve.
Sunday, November 3, 2013
Weekly Market Commentary - Oct 28 - Nov 1, 2013
Growing inflation, rising NPAs, deteriorating governance and still here we are at record high Sensex. As we all know, this rally is liquidity driven and this liquidity will not stop flowing until March next year. At least that is what street was expecting. I feel unless the rally spreads to midcaps and small caps (as the chart below suggests it hasn’t) it can’t be relied upon and can fizzle out anytime in next two quarters. It is advisable that investors book profits in the names, which have rallied beyond what their fundamentals would suggest.
Sensex gained 2.5%, Nifty gained 2.6% and CNX Midcap was up by 3.5% this week.
Monday – Sensex down by 0.5%, Nifty down by 0.7%, Midcap down by 0.8%
Markets were little jittery ahead of RBI monetary policy review meeting on Tuesday. A 25 bps repo rate hike is widely expected on the street. Fed is also scheduled to meet on Tuesday to discuss their tapering plans.
Tuesday - Sensex up by 1.7%, Nifty up by 2.0%, Midcap up by 1.5%
Markets went up as RBI actions were in line with what street was expecting. RBI raised the repo rate by 25 bps while cutting down the MSF rate by the same amount, thereby bringing the difference between them back to normal 100 bps. Mood was also bullish due to Fed’s decision of keeping their liquidity taps open and short coverings ahead of derivative expiry on Thursday.
Wednesday – Sensex up by 0.5%, Nifty up by 0.5%, Midcap up by 0.1%
Markets continued their momentum from previous day but were largely volatile ahead of F&O expiry next day.
Thursday – Sensex up by 0.6%, Nifty up by 0.8%, Midcap up by 1.5%
Sensex rose to its all time high amidst the sustained buying from institutional investors who ignored the latest Fed pronouncement of stopping the QE sooner than expected. As of now, market is factoring tapering to begin in March next year.
Friday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap up by 1.2%
Strong support from FIIs and Fed’s decision to continue its QE program for now continued to take Sensex to a new high.
Monday – Sensex down by 0.5%, Nifty down by 0.7%, Midcap down by 0.8%
Markets were little jittery ahead of RBI monetary policy review meeting on Tuesday. A 25 bps repo rate hike is widely expected on the street. Fed is also scheduled to meet on Tuesday to discuss their tapering plans.
Tuesday - Sensex up by 1.7%, Nifty up by 2.0%, Midcap up by 1.5%
Markets went up as RBI actions were in line with what street was expecting. RBI raised the repo rate by 25 bps while cutting down the MSF rate by the same amount, thereby bringing the difference between them back to normal 100 bps. Mood was also bullish due to Fed’s decision of keeping their liquidity taps open and short coverings ahead of derivative expiry on Thursday.
Wednesday – Sensex up by 0.5%, Nifty up by 0.5%, Midcap up by 0.1%
Markets continued their momentum from previous day but were largely volatile ahead of F&O expiry next day.
Thursday – Sensex up by 0.6%, Nifty up by 0.8%, Midcap up by 1.5%
Sensex rose to its all time high amidst the sustained buying from institutional investors who ignored the latest Fed pronouncement of stopping the QE sooner than expected. As of now, market is factoring tapering to begin in March next year.
Friday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap up by 1.2%
Strong support from FIIs and Fed’s decision to continue its QE program for now continued to take Sensex to a new high.
Sunday, October 27, 2013
Weekly Market Commentary - Oct 21 - Oct 25, 2013
What might appear to be a dull week was actually quite interesting. Sensex tried to regain its old glory by rising within a handshake distance of all time high. In early 2008, when Sensex was at its peak, everybody (almost) believed India could do no wrong. Today investors are more cautious than ever.
Some bulls reason that current rally is sustainable due to good corporate results. This is not true. Markets are rallying as US Fed decided to defer its QE tapering decision and India benefits as it gets its share of global portfolio allocation.
Better than expectations result (was expectations low or results were actually better) helped the bulls find a fundamental story in the yarn they were already weaving.
Anyways, not all sectors have posted good results. Most of the cement stocks, the sector that should be the early riser in case of recovery, posted 50-80% decline in their quarterly profits.
We believe we want to believe.
Sensex lost 1.0%, Nifty lost 0.7% and CNX Midcap was up by 0.3% this week.
Monday – Sensex up by 0.1%, Nifty up by 0.3%, Midcap up by 1.0%
Markets are range bound, as investors get concerned about valuation levels. Easy liquidity flow continued to prop up the market levels.
Tuesday - Sensex down by 0.1%, Nifty flat, Midcap up by 0.4%
Investors continued to stay cautious as global markets wait for release of US jobs data later in the day. Jobs numbers are one of the critical figures, which US Fed looks out for to decide on its tapering plans.
Wednesday – Sensex down by 0.5%, Nifty down by 0.4%, Midcap down by 0.2%
Weak US jobs data firmly pushed expectations for the tapering of Federal Reserve stimulus into next year. Markets opened higher earlier in the day but lost all gains as interest rate sensitive stocks see selling pressure ahead of RBI meeting on Oct 29.
Thursday – Sensex down by 0.2%, Nifty down by 0.2%, Midcap flat
Sensex continues to see resistance as most of the stocks stayed in high valuation range while investor’s fear of another rate hike of 25 bps by RBI led to selling in rate sensitive stocks.
Friday – Sensex down by 0.2%, Nifty down by 0.3%, Midcap down by 1.0%
Sensex ended the day in negative after a brief rally during the day. India’s economic fundamentals do not support the current market levels. Investors continued to book profits in IT companies.
Some bulls reason that current rally is sustainable due to good corporate results. This is not true. Markets are rallying as US Fed decided to defer its QE tapering decision and India benefits as it gets its share of global portfolio allocation.
Better than expectations result (was expectations low or results were actually better) helped the bulls find a fundamental story in the yarn they were already weaving.
Anyways, not all sectors have posted good results. Most of the cement stocks, the sector that should be the early riser in case of recovery, posted 50-80% decline in their quarterly profits.
We believe we want to believe.
Sensex lost 1.0%, Nifty lost 0.7% and CNX Midcap was up by 0.3% this week.
Monday – Sensex up by 0.1%, Nifty up by 0.3%, Midcap up by 1.0%
Markets are range bound, as investors get concerned about valuation levels. Easy liquidity flow continued to prop up the market levels.
Tuesday - Sensex down by 0.1%, Nifty flat, Midcap up by 0.4%
Investors continued to stay cautious as global markets wait for release of US jobs data later in the day. Jobs numbers are one of the critical figures, which US Fed looks out for to decide on its tapering plans.
Wednesday – Sensex down by 0.5%, Nifty down by 0.4%, Midcap down by 0.2%
Weak US jobs data firmly pushed expectations for the tapering of Federal Reserve stimulus into next year. Markets opened higher earlier in the day but lost all gains as interest rate sensitive stocks see selling pressure ahead of RBI meeting on Oct 29.
Thursday – Sensex down by 0.2%, Nifty down by 0.2%, Midcap flat
Sensex continues to see resistance as most of the stocks stayed in high valuation range while investor’s fear of another rate hike of 25 bps by RBI led to selling in rate sensitive stocks.
Friday – Sensex down by 0.2%, Nifty down by 0.3%, Midcap down by 1.0%
Sensex ended the day in negative after a brief rally during the day. India’s economic fundamentals do not support the current market levels. Investors continued to book profits in IT companies.
Saturday, October 19, 2013
Weekly Market Commentary - Oct 14 - Oct 18, 2013
So far, earnings season continues to surprise Indian investors to the upside. As Sensex continues to hover around its all time high, most investors will do well to realize that expectation investing can come as an handy tool a bit before earnings season is about to start. Most investors do not use DCF while analyzing a stock/company. I do though. With so many assumptions and complexities built into it, DCF does not act as a quick tool to help investors/speculators make money. In such a scenario, they can resort to what Michael J. Mauboussin calls Expectation Investing.
Expectation Investing is also knows as Reverse DCF. In this method, instead of trying to value a company (stock) by forecasting free cash flows into the future and then discounting them to current period, you do it the other way round.
You look at the current stock price and then try to find out what assumptions market is building into the price. The analyst can review these assumptions and see whether expectations are excessively high or too low to arrive at the decision of investing in that particular company or not.
The biggest advantage of this method, is as you can see, is it eliminated the need of forecasting. However, this method does not provide a quick way to analyse stocks but when formalized into a framework it can help an investor to make a quick decision.
Finally, as a noted statistician George Box said “All models are wrong; some are useful.”
I urge my readers to share with us their experience with Reverse DCF process, if they have tried it in the past.
Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.
Monday – Sensex up by 0.4%, Nifty up by 0.3%, Midcap up by 0.6%
Market party over good Infosys results (guidance) ended early as inflation played spoilsport. September WPI was 6.46% against 6.1% in August and 46 bps above the street estimate of 6%. Surge in inflation has put RBI in a fix and investors on back foot as RBI now will find it difficult to lower interest rates and even may lead to rate hikes to contain the inflationary pressure.
Tuesday - Sensex down by 0.3%, Nifty down by 0.4%, Midcap down by 1.2%
Yesterday’s high inflation numbers led to selling in banking and other rate sensitive stocks. HDFC lost some ground as bank reported its slowest growth quarter in a decade. HDFC earnings increased 27% y-o-y against its record 30% growth in every quarter in last decade.
Wednesday – Markets closed on Eid.
Thursday – Sensex down by 0.6%, Nifty down by 0.7%, Midcap down by 0.4%
Markets were down as investors resorted to profit booking as Infosys and TCS good results quickly became the story of the past. The market did not move much on the news of deal on US shutdown and debt ceiling. Most talked about event of recent times continued to be ignored by investors in the Indian markets.
Friday – Sensex up by 2.3%, Nifty up by 2.4%, Midcap up by 1.4%
A good close to a rather mute week. Markets went up as corporate earnings continued to surprise. L&T, the capital goods major, reported a 7% rise in quarterly profit beating the analyst estimates. Market sentiment was also boosted by the news that LIC will invest Rs. 40,000 crores ($1.28 billion) into the markets in FY14.
Expectation Investing is also knows as Reverse DCF. In this method, instead of trying to value a company (stock) by forecasting free cash flows into the future and then discounting them to current period, you do it the other way round.
You look at the current stock price and then try to find out what assumptions market is building into the price. The analyst can review these assumptions and see whether expectations are excessively high or too low to arrive at the decision of investing in that particular company or not.
The biggest advantage of this method, is as you can see, is it eliminated the need of forecasting. However, this method does not provide a quick way to analyse stocks but when formalized into a framework it can help an investor to make a quick decision.
Finally, as a noted statistician George Box said “All models are wrong; some are useful.”
I urge my readers to share with us their experience with Reverse DCF process, if they have tried it in the past.
Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.
Monday – Sensex up by 0.4%, Nifty up by 0.3%, Midcap up by 0.6%
Market party over good Infosys results (guidance) ended early as inflation played spoilsport. September WPI was 6.46% against 6.1% in August and 46 bps above the street estimate of 6%. Surge in inflation has put RBI in a fix and investors on back foot as RBI now will find it difficult to lower interest rates and even may lead to rate hikes to contain the inflationary pressure.
Tuesday - Sensex down by 0.3%, Nifty down by 0.4%, Midcap down by 1.2%
Yesterday’s high inflation numbers led to selling in banking and other rate sensitive stocks. HDFC lost some ground as bank reported its slowest growth quarter in a decade. HDFC earnings increased 27% y-o-y against its record 30% growth in every quarter in last decade.
Wednesday – Markets closed on Eid.
Thursday – Sensex down by 0.6%, Nifty down by 0.7%, Midcap down by 0.4%
Markets were down as investors resorted to profit booking as Infosys and TCS good results quickly became the story of the past. The market did not move much on the news of deal on US shutdown and debt ceiling. Most talked about event of recent times continued to be ignored by investors in the Indian markets.
Friday – Sensex up by 2.3%, Nifty up by 2.4%, Midcap up by 1.4%
A good close to a rather mute week. Markets went up as corporate earnings continued to surprise. L&T, the capital goods major, reported a 7% rise in quarterly profit beating the analyst estimates. Market sentiment was also boosted by the news that LIC will invest Rs. 40,000 crores ($1.28 billion) into the markets in FY14.
Sunday, October 13, 2013
Weekly Market Commentary - Oct 7 - Oct 11, 2013
Infosys results started the Indian earnings season in style, with markets welcoming the raising of lower limit of FY14 revenue guidance. Meanwhile economic slowdown, falling capex spending and low consumer confidence is leading to muted expectations from 2QFY14 earnings. Sensex companies are expected to grow their earnings by 5-7% led by export-oriented sectors that are going to benefit from rupee depreciation.
Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.
Monday – Sensex down by 0.1%, Nifty down by 0.0%, Midcap up by 0.7%
Concerns over US shutdown led to muted trading in global markets. If fighting political parties did not reach the solution soon, it may considerably dent the ongoing recovery in US economy.
Tuesday - Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 0.1%
RBI tried to undo its liquidity tightening measures it introduced when US tapering announcement led to crash in rupee value against major currencies. RBI reduced the MSF rates by another 50 bps to 9% in addition to increasing the duration of lending to the banks from current one day to 7 and 14 days.
Wednesday – Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.0%
Indian markets struggled in early sessions as IMF reduced the country’s growth projection to 3.8% in FY14. IMF also sees global growth falling to lowest since financial crisis. Markets recouped all its losses when data showed that trade gap narrowed to the lowest level in 30 months. The trade deficit narrowed to $6.76 billion in September from $10.9 billion in August. Main reason for the fall was govt. moves on tightening gold import which has led to decline in gold and silver imports to just $0.8 billion vs. $4.6 billion a year ago.
Thursday – Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.4%
Investors stayed cautious head of the beginning of earnings season on Friday with IT bellwether Infosys results announcement. Street is not expecting any surprises this earning season and is choosing to be selectively bullish this season.
Friday – Sensex up by 1.3%, Nifty up by 1.2%, Midcap flat
Most of the Asian markets closed in green as US political leaders showed some signs of compromise on US shutdown crisis. Infosys results cheered the market as company increased its FY14 guidance to 9-10% from 6-10% guidance previous quarter. Investors also cheered the new draft regulations allowing the establishment of real estate investment trusts in India.
Sensex gained 3.1%, Nifty gained 3.2% and CNX Midcap was up by 2.3% this week.
Monday – Sensex down by 0.1%, Nifty down by 0.0%, Midcap up by 0.7%
Concerns over US shutdown led to muted trading in global markets. If fighting political parties did not reach the solution soon, it may considerably dent the ongoing recovery in US economy.
Tuesday - Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 0.1%
RBI tried to undo its liquidity tightening measures it introduced when US tapering announcement led to crash in rupee value against major currencies. RBI reduced the MSF rates by another 50 bps to 9% in addition to increasing the duration of lending to the banks from current one day to 7 and 14 days.
Wednesday – Sensex up by 1.3%, Nifty up by 1.3%, Midcap up by 1.0%
Indian markets struggled in early sessions as IMF reduced the country’s growth projection to 3.8% in FY14. IMF also sees global growth falling to lowest since financial crisis. Markets recouped all its losses when data showed that trade gap narrowed to the lowest level in 30 months. The trade deficit narrowed to $6.76 billion in September from $10.9 billion in August. Main reason for the fall was govt. moves on tightening gold import which has led to decline in gold and silver imports to just $0.8 billion vs. $4.6 billion a year ago.
Thursday – Sensex up by 0.1%, Nifty up by 0.2%, Midcap up by 0.4%
Investors stayed cautious head of the beginning of earnings season on Friday with IT bellwether Infosys results announcement. Street is not expecting any surprises this earning season and is choosing to be selectively bullish this season.
Friday – Sensex up by 1.3%, Nifty up by 1.2%, Midcap flat
Most of the Asian markets closed in green as US political leaders showed some signs of compromise on US shutdown crisis. Infosys results cheered the market as company increased its FY14 guidance to 9-10% from 6-10% guidance previous quarter. Investors also cheered the new draft regulations allowing the establishment of real estate investment trusts in India.
Sunday, October 6, 2013
Weekly Market Commentary - Sept 30 - Oct 4, 2013
Indian markets gained this week primarily due to US shutdown, which inadvertently threw FIIs dollars in its direction. Nothing much has changed in Indian fundamentals though: CAD is still high; cost of funds has not gone down; consumer and business sentiment as reflected by weak PMI data. Even then, market is trading near its highs; is expensive and is very volatile. Though I continue to seek out the reasons to explain these anomalies, and I focus on most important ones, the economy and markets have too many moving parts. Every now and then, in order to explain the movements, I give in to recency effect and attentional bias.
Recency effect is nothing but one’s inclination to explain the process/event occurred, by whatever fresh news/story/event comes to mind. For e.g. markets went up as new RBI governor sworn in.
Attentional bias, on the other hand, is using your current subject under study: one you are most closely paying attention to, to explain every event occurring. For e.g. US shutdown is leading to global market rally as dollar investors have nowhere to go.
However, both examples used above may explain the market movements or state of the economy to some extent but the point is they are not the only ones.
Sensex gained 1.0%, Nifty gained 1.3% and CNX Midcap was up by 1.5% this week.
Monday – Sensex down by 1.8%, Nifty down by 1.7%, Midcap down by 0.8%
Indian markets were under pressure ahead of current account data release expected later in the day. An ET poll is estimating CAD to average $23 billion for Apr-Jun quarter vs. $18.1 billion a quarter earlier. Investors are worried that bad CAD data may force RBI to intervene in the market again and may escalate the cost of doing business in the near term.
Tuesday - Sensex up by 0.7%, Nifty up by 0.8%, Midcap up by 0.6%
Markets went up as RBI promised to infuse liquidity into the system via Rs. 10,000 crores purchase of government securities. Also, CAD figures released previous day came out to be little lower than what market participants were expecting. Gold and oil imports pushed 1Q14 CAD to $21.8 billion i.e. 4.9% of GDP. Indian govt plans to reduce the current account deficit to 3.7% of the GDP in FY14 to meet its $70 billion target.
Wednesday – Markets closed on occasion of Gandhi Jayanti
Thursday – Sensex up by 2.0%, Nifty up by 2.2%, Midcap up by 1.6%
Indian markets rose, as they became the target of FIIs dollars as current political crisis in United States has led to a shutdown of non-essential govt functionaries. Investors are worried that shutdown may prolong and will jeopardize any recovery of US economy.
Friday – Sensex up by 0.1%, Nifty flat, Midcap up by 0.2%
Markets ended flat as US dollars continued to flow in leading to increase in the value of Indian currency. The gain was capped as investors were disappointed by weak HSBC PMI data, which fell to 46.1 vs. 47.6 in August indicating contraction in private economy. Realty, auto and consumers gained as govt. decided to infuse funds into PSU banks to help them offer cheaper loans to public and industry.
Recency effect is nothing but one’s inclination to explain the process/event occurred, by whatever fresh news/story/event comes to mind. For e.g. markets went up as new RBI governor sworn in.
Attentional bias, on the other hand, is using your current subject under study: one you are most closely paying attention to, to explain every event occurring. For e.g. US shutdown is leading to global market rally as dollar investors have nowhere to go.
However, both examples used above may explain the market movements or state of the economy to some extent but the point is they are not the only ones.
Sensex gained 1.0%, Nifty gained 1.3% and CNX Midcap was up by 1.5% this week.
Monday – Sensex down by 1.8%, Nifty down by 1.7%, Midcap down by 0.8%
Indian markets were under pressure ahead of current account data release expected later in the day. An ET poll is estimating CAD to average $23 billion for Apr-Jun quarter vs. $18.1 billion a quarter earlier. Investors are worried that bad CAD data may force RBI to intervene in the market again and may escalate the cost of doing business in the near term.
Tuesday - Sensex up by 0.7%, Nifty up by 0.8%, Midcap up by 0.6%
Markets went up as RBI promised to infuse liquidity into the system via Rs. 10,000 crores purchase of government securities. Also, CAD figures released previous day came out to be little lower than what market participants were expecting. Gold and oil imports pushed 1Q14 CAD to $21.8 billion i.e. 4.9% of GDP. Indian govt plans to reduce the current account deficit to 3.7% of the GDP in FY14 to meet its $70 billion target.
Wednesday – Markets closed on occasion of Gandhi Jayanti
Thursday – Sensex up by 2.0%, Nifty up by 2.2%, Midcap up by 1.6%
Indian markets rose, as they became the target of FIIs dollars as current political crisis in United States has led to a shutdown of non-essential govt functionaries. Investors are worried that shutdown may prolong and will jeopardize any recovery of US economy.
Friday – Sensex up by 0.1%, Nifty flat, Midcap up by 0.2%
Markets ended flat as US dollars continued to flow in leading to increase in the value of Indian currency. The gain was capped as investors were disappointed by weak HSBC PMI data, which fell to 46.1 vs. 47.6 in August indicating contraction in private economy. Realty, auto and consumers gained as govt. decided to infuse funds into PSU banks to help them offer cheaper loans to public and industry.
Sunday, September 29, 2013
Weekly Market Commentary - Sept 23 - Sept 27, 2013
Overall, trades seeking to play the Fed-RBI announcement continued to unwind this week and took markets down with them. As second quarter results are upon us and street is not too excited with business environment and expects the results to be boring, indices are failing to find new catalyst to hold their ground. Sensex lost 2.6%, Nifty lost 3.0% and CNX Midcap was down by 0.5% this week.
Monday – Sensex down by 1.8%, Nifty down by 2.0%, Midcap down by 1.0%
Markets crumbled as investors’ sky-high expectations from the newly appointed RBI governor meets the realities on the ground. As Raghuram Rajan went on making inflation fighting his topmost priority and tightened liquidity, rate sensitives stocks such as banks took a heavy beating.
Tuesday - Sensex up by 0.1%, Nifty up by 0.0%, Midcap up by 0.2%
Banks continued to see heavy selling as Moody cut the SBI’s local currency and senior unsecured debt rating to lowest investment grade to Baa3 while changing the financial strength outlook to negative. Moody blamed the current weak financial position of bank’s promoter, Indian government as the reason for decline in asset quality, profitability and capital of public sector banks such as SBI.
Wednesday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap up by 0.4%
Investors continue to square off the trades set up in the wake of Fed-RBI meetings previous week, ahead of derivative expiry on Thursday. Financial Technologies stock plunged as its auditor Deloitte Haskins bailed out on the firm and withdrew their audit report after claiming that firm’s financial statements are not reliable.
Thursday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap down by 0.1%
Markets continued to stay volatile as investors unwind their positions on F&O expiry day but ended up little higher as RBI tried to give the market a reprieve by announcing a possibility of conducting OMO to ensure sufficient liquidity in the system.
Friday – Sensex down by 0.8%, Nifty down by 0.8%, Midcap flat
October F&O series started on a mute note with markets now turning to corporate earnings announcements expected in October to be low to modest, at best. Banks stayed under pressure as Raghuram went on questioning the strategy of central bankers around the world to keep the interest rates low to stimulate growth.
Monday – Sensex down by 1.8%, Nifty down by 2.0%, Midcap down by 1.0%
Markets crumbled as investors’ sky-high expectations from the newly appointed RBI governor meets the realities on the ground. As Raghuram Rajan went on making inflation fighting his topmost priority and tightened liquidity, rate sensitives stocks such as banks took a heavy beating.
Tuesday - Sensex up by 0.1%, Nifty up by 0.0%, Midcap up by 0.2%
Banks continued to see heavy selling as Moody cut the SBI’s local currency and senior unsecured debt rating to lowest investment grade to Baa3 while changing the financial strength outlook to negative. Moody blamed the current weak financial position of bank’s promoter, Indian government as the reason for decline in asset quality, profitability and capital of public sector banks such as SBI.
Wednesday - Sensex down by 0.3%, Nifty down by 0.3%, Midcap up by 0.4%
Investors continue to square off the trades set up in the wake of Fed-RBI meetings previous week, ahead of derivative expiry on Thursday. Financial Technologies stock plunged as its auditor Deloitte Haskins bailed out on the firm and withdrew their audit report after claiming that firm’s financial statements are not reliable.
Thursday – Sensex up by 0.2%, Nifty up by 0.1%, Midcap down by 0.1%
Markets continued to stay volatile as investors unwind their positions on F&O expiry day but ended up little higher as RBI tried to give the market a reprieve by announcing a possibility of conducting OMO to ensure sufficient liquidity in the system.
Friday – Sensex down by 0.8%, Nifty down by 0.8%, Midcap flat
October F&O series started on a mute note with markets now turning to corporate earnings announcements expected in October to be low to modest, at best. Banks stayed under pressure as Raghuram went on questioning the strategy of central bankers around the world to keep the interest rates low to stimulate growth.
Sunday, September 22, 2013
Weekly Market Commentary - Sept 16 - Sept 20, 2013
India, since Fed announced its tapering plans, got its act together and has done quite well in pushing some key reforms in parliament. RBI on its part took some controversial, but crucial steps to stem the decline in rupee that followed the Fed announcement. Now, when Fed has put a halt on its tapering plans, we all can just keep our fingers crossed and hope that Indian govt. does not become complacent and let go off this lifeline. We hope that reform momentum continues and we get our house in order before the next shitstorm hit us.
Sensex gained 2.7%, Nifty gained 2.8% and CNX Midcap was up by 1.3% this week.
Monday – Sensex flat at 0.0%, Nifty down by 0.2%, Midcap down by 0.5%
Investors were disappointed on Monday as RBI released its WPI inflation figures. RBI while formulating its policies uses WPI data along with CPI as an anchor. According to data released on Friday, retail inflation dropped in August. However unlike retail inflation, WPI rose to six month high to 6.1% in August (July – 5.79%). Market is anticipating that upturn in WPI will make it difficult for newly appointed RBI governor to cut rates.
Tuesday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 0.3%
Investors remain cautious ahead of two key events this week. On Sept 18, Fed will take decision on whether to continue to taper and by how much. Street is expecting tapering of $5-$10 billion every month. Anything above or below that range can cause sharp movements in the indices. Raghuram Rajan has decided to unveil its maiden policy on Sept 20 after getting a handle on Fed announcements. These two events together may hold key to future movements of Indian indices.
Wednesday - Sensex up by 0.8%, Nifty up by 0.8%, Midcap up by 0.5%
Expectations from Fed meeting continue to weigh on the markets. Markets closed higher as FIIs continue to build positions in the Indian markets.
Thursday – Sensex up by 3.4%, Nifty up by 3.7%, Midcap up by 2.9%
Fed surprised the market with announcement of deferring its tapering plans and instead decided to continue with its stimulus amid weak economic growth in US. I already highlighted in June that how the timing of tapering is suspicious as US economy, and with it global economy, continues to struggle. Markets celebrated the decision as day of reckoning for many of emerging economies like India, has deferred to some unknown date in the future.
Friday – Sensex down by 1.9%, Nifty down by 1.7%, Midcap down by 1.3%
In his maiden policy, Raghuram Rajan stumped the investors with a repo rate hike. Repo rate is now 7.25%. Rajan made it clear that fighting the inflation and exchange rate management is his top priority, so there is a need of liquidity tightening. RBI, in a bid to lower the cost of capital of banks, reduced the MSF by 75 bps from 10.25% to 9.5% and slashed the minimum daily CRR requirement from 99% to 95%.
Sensex gained 2.7%, Nifty gained 2.8% and CNX Midcap was up by 1.3% this week.
Monday – Sensex flat at 0.0%, Nifty down by 0.2%, Midcap down by 0.5%
Investors were disappointed on Monday as RBI released its WPI inflation figures. RBI while formulating its policies uses WPI data along with CPI as an anchor. According to data released on Friday, retail inflation dropped in August. However unlike retail inflation, WPI rose to six month high to 6.1% in August (July – 5.79%). Market is anticipating that upturn in WPI will make it difficult for newly appointed RBI governor to cut rates.
Tuesday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 0.3%
Investors remain cautious ahead of two key events this week. On Sept 18, Fed will take decision on whether to continue to taper and by how much. Street is expecting tapering of $5-$10 billion every month. Anything above or below that range can cause sharp movements in the indices. Raghuram Rajan has decided to unveil its maiden policy on Sept 20 after getting a handle on Fed announcements. These two events together may hold key to future movements of Indian indices.
Wednesday - Sensex up by 0.8%, Nifty up by 0.8%, Midcap up by 0.5%
Expectations from Fed meeting continue to weigh on the markets. Markets closed higher as FIIs continue to build positions in the Indian markets.
Thursday – Sensex up by 3.4%, Nifty up by 3.7%, Midcap up by 2.9%
Fed surprised the market with announcement of deferring its tapering plans and instead decided to continue with its stimulus amid weak economic growth in US. I already highlighted in June that how the timing of tapering is suspicious as US economy, and with it global economy, continues to struggle. Markets celebrated the decision as day of reckoning for many of emerging economies like India, has deferred to some unknown date in the future.
Friday – Sensex down by 1.9%, Nifty down by 1.7%, Midcap down by 1.3%
In his maiden policy, Raghuram Rajan stumped the investors with a repo rate hike. Repo rate is now 7.25%. Rajan made it clear that fighting the inflation and exchange rate management is his top priority, so there is a need of liquidity tightening. RBI, in a bid to lower the cost of capital of banks, reduced the MSF by 75 bps from 10.25% to 9.5% and slashed the minimum daily CRR requirement from 99% to 95%.
Friday, August 23, 2013
Weekly Market Commentary - Aug 19 - Aug 23, 2013
To say that markets were volatile would be an understatement this week. Sensex lost around 700 points in first three days and gained 600 in last two. This week highlights were new lows made by rupee and RBI turning dovish (throwing in the towel?) and attempting easing liquidity in the market after a spell of tightening measures to fight the currency decline (which didn’t work of course, but RBI did claim victory!). Sensex and Nifty ended this week down 0.4% and 0.7% respectively, while CNX Midcap was down 1.6%.
Monday - Sensex down by 1.6%, Nifty down by 1.7%, Midcap down by 1.9%
Markets continue to plunge as investors voted with their feet as currency fell to its new all-time low of 62.81 vs. USD. Govt’s move of clearing few investment projects worth Rs.1,100bn was unable to provide any support to the market.
Tuesday - Sensex down by 0.3%, Nifty down by 0.2%, Midcap down by 0.6%
Investors’ worries seem not to be abating as any of the RBI measures have failed to stem rupee declines. So far, Indian IT and Pharma stocks have been able to save investors from full scale carnage in the markets.
Wednesday - Sensex down by 1.9%, Nifty down by 1.8%, Midcap down by 1.5%
A fresh low of 64.55 a dollar made by rupee prompted investors to even exit and book profits on their IT and Pharma stocks. RBI, in a bid to ease liquidity in the system and reduce long-term cost of borrowing announced purchase of Rs80bn worth of bonds in the market on Aug 23 and may buy more if required. This RBI action came as a breather to banks and banking stocks rallied amid the falling market.
Thursday - Sensex up by 2.3%, Nifty up by 2.0%, Midcap up by 1.1%
Tape turned green for the first time this week as RBI signaled change in its monetary stance. RBI also stated that its measures on short-term policy rates have stained their objectives, which send a positive signal to the market indicating no more tightening in short term. Bullish sentiment in the market overcame the Fed announcement on continuing tapering of its QE and new low made by rupee against the dollar.
Friday - Sensex up by 1.1%, Nifty up by 1.2%, Midcap up by 1.2%
Markets continued their previous day’s upside momentum as investors rushed to bargain hunting especially in capital goods sector, which has been facing lot of bearishness owing to delay in large scale projects in the country and abroad and increase in cost of borrowings.
Monday - Sensex down by 1.6%, Nifty down by 1.7%, Midcap down by 1.9%
Markets continue to plunge as investors voted with their feet as currency fell to its new all-time low of 62.81 vs. USD. Govt’s move of clearing few investment projects worth Rs.1,100bn was unable to provide any support to the market.
Tuesday - Sensex down by 0.3%, Nifty down by 0.2%, Midcap down by 0.6%
Investors’ worries seem not to be abating as any of the RBI measures have failed to stem rupee declines. So far, Indian IT and Pharma stocks have been able to save investors from full scale carnage in the markets.
Wednesday - Sensex down by 1.9%, Nifty down by 1.8%, Midcap down by 1.5%
A fresh low of 64.55 a dollar made by rupee prompted investors to even exit and book profits on their IT and Pharma stocks. RBI, in a bid to ease liquidity in the system and reduce long-term cost of borrowing announced purchase of Rs80bn worth of bonds in the market on Aug 23 and may buy more if required. This RBI action came as a breather to banks and banking stocks rallied amid the falling market.
Thursday - Sensex up by 2.3%, Nifty up by 2.0%, Midcap up by 1.1%
Tape turned green for the first time this week as RBI signaled change in its monetary stance. RBI also stated that its measures on short-term policy rates have stained their objectives, which send a positive signal to the market indicating no more tightening in short term. Bullish sentiment in the market overcame the Fed announcement on continuing tapering of its QE and new low made by rupee against the dollar.
Friday - Sensex up by 1.1%, Nifty up by 1.2%, Midcap up by 1.2%
Markets continued their previous day’s upside momentum as investors rushed to bargain hunting especially in capital goods sector, which has been facing lot of bearishness owing to delay in large scale projects in the country and abroad and increase in cost of borrowings.
Sunday, August 4, 2013
RBI Analyst Conference Call Summary
Headline
RBI kept all the policy rates unchanged; the repo rate, the reverse repo rate and the CRR. The MSF rate too stayed at 10.25% with a mark-up of 300 basis points above the repo rate.
Two key things on RBI's mind while drafting this policy: external sector concerns, especially those stemming from global financial markets over the last 10 weeks (read Fed stimulus tapering plans); the second was the standard concern of any central bank of maintaining growth and inflation balance.
On Growth
On the domestic front, the silver lining is that the monsoon so far has been above long term average. However, industrial production is lower than what RBI thought it was and services sector activity is subdued in part because of because of tepid global demand.
Keeping all this mind, RBI revised its FY14 GDP growth projections downwards from 5.7% to 5.5%.
On Inflation
The biggest risk to inflation is from the depreciation of the rupee and the any pass-through from there. RBI’s recent study shows that the coefficient of pass-through has increased and now every 10% depreciation results in a 1.2% increase in inflation vs. 1.1% earlier.
Vulnerabilities
RBI discussed four risk factors in which biggest is vulnerability in the external sector, in particular sudden stop and reversal of capital flows seen over the last 10 weeks.
The second risk factor is the large CAD, which has stayed above the sustainable level for 3 years in a row and has affected external payment situation. Most external vulnerability indicators have deteriorated indicating that the economy’s resilience to external shocks is eroded.
The third risk factor is the continuing weak investment environment which remains weak because of a number of factors such as cost and time overruns, high leverage, deteriorating cash flows, erosion of asset quality and muted credit confidence.
The final risk factor is something that has sort of stuck, which is the supply constraints in the economy. There are a number of supply constraints especially in the food and infrastructure sectors which affect growth and inflation.
Guidance
RBI is caught in a classic ‘impossible trinity’ trilemma (more about it here). It has to forfeit economy’s growth inflation dynamic, informed monetary policy stance, in order to take care of external concerns.
RBI will roll back liquidity-tightening measures in a calibrated manner as forex markets stabilizes.
Q&A
Kaushik Das (DB): Hi, my question is regarding India’s reserve adequacy. As per the latest data, reserves can still cover about 6-7-months of imports but particularly worrying is the sharp increase in the short-term external debt on a residual maturity basis, which has touched $172 billion odd. So how concerned is RBI about this reserve adequacy position of India, especially when reserves are down further due to FX intervention?
The second question is regarding the potential growth rate of economy. Last year the expectation was that the potential growth rate has come down to about 6.5 to 7%. Does RBI think that the potential growth rate has fallen further in the wake of the developments of the last few months?
Dr. Urjit Patel (Dy. Guv): We actually feel that our reserves are adequate; 6.5 to 7-month of import cover is good, our short-term debt has increased but the short-term debt has been comfortably rolled over and refinanced over the last 3 years despite the high CAD. Even IMF, by the criteria they use, feels that our reserve position is adequate and comfortable.
On the potential growth, the RBI’s calculations and models suggest that it is about 7% now.
Sonal Varma (Nomura): I wanted to ask what is the risk that these tightening measures can precipitate into a bigger problem for the banking system, because of asset quality stress. What is the RBI’s view on that?
Dr. K. C. Chakrabarty: Anyhow, RBI will not be able to protect banks’ asset quality. Suppose, if you allow the exchange rate to depreciate, then the corporates, who have gone for ECB borrowings will default and banks asset quality will deteriorate. And if the rate has gone up then definitely because of the portfolio depreciation, they will be affected. We feel that HTM is more manageable because banks must understand the risk and we allow lot of amount to be put in the HTM category so this is a better option, which is our assessment.
Simon Flint (Dymon Asia Capital): Governor, you suggested that because of the large current account deficit, the rupee depreciation in some senses would be warranted. On the other hand, you do have some economists, I think including some in the Ministry of Finance who have argued that if you compare the present value of the rupee to the real effective exchange rate (REER), let us say which prevailed over 2004-2005, then the rupee is actually overshooting and is now undervalued. So I guess can you give us a sense of where you see rupee today relative to its fair value.
Dr. D. Subbarao: My answer to your very well argued question is quite short, that the RBI does not take a position on the level of the exchange rate. The depreciation of the currency has costs for the economy, but that is a different matter. We do not take a position on the exchange rate; there are various ways of calculating it including the way that you have indicated from the Ministry of Finance. All we said yesterday was that because of the current account deficit, the rupee would have depreciated and that has not happened because we have been able to finance it, and now that there is capital flow issues, those strains are coming into play, and the rupee is depreciating.
Rajeev Malik (CLSA): RBI has consistently maintained that it does not target any particular level and it is really only concerned with the volatility. The government on the other hand, every time the rupee slips, begins to get palpitations partly although not entirely, because of the impact on the fiscal front. How do you marry the two? At the end of the day a lot of that worsening because of rupee depreciation also has a feedback loop into how monetary policy is being conducted.
Dr. D. Subbarao: Both the government and the RBI are really on the same page as far as larger objective is concerned which is to control volatility. Neither the government nor the Reserve Bank is targeting any particular rate. And that is the message I think everybody listening in must take away.
RBI kept all the policy rates unchanged; the repo rate, the reverse repo rate and the CRR. The MSF rate too stayed at 10.25% with a mark-up of 300 basis points above the repo rate.
Two key things on RBI's mind while drafting this policy: external sector concerns, especially those stemming from global financial markets over the last 10 weeks (read Fed stimulus tapering plans); the second was the standard concern of any central bank of maintaining growth and inflation balance.
On Growth
On the domestic front, the silver lining is that the monsoon so far has been above long term average. However, industrial production is lower than what RBI thought it was and services sector activity is subdued in part because of because of tepid global demand.
Keeping all this mind, RBI revised its FY14 GDP growth projections downwards from 5.7% to 5.5%.
On Inflation
The biggest risk to inflation is from the depreciation of the rupee and the any pass-through from there. RBI’s recent study shows that the coefficient of pass-through has increased and now every 10% depreciation results in a 1.2% increase in inflation vs. 1.1% earlier.
Vulnerabilities
RBI discussed four risk factors in which biggest is vulnerability in the external sector, in particular sudden stop and reversal of capital flows seen over the last 10 weeks.
The second risk factor is the large CAD, which has stayed above the sustainable level for 3 years in a row and has affected external payment situation. Most external vulnerability indicators have deteriorated indicating that the economy’s resilience to external shocks is eroded.
The third risk factor is the continuing weak investment environment which remains weak because of a number of factors such as cost and time overruns, high leverage, deteriorating cash flows, erosion of asset quality and muted credit confidence.
The final risk factor is something that has sort of stuck, which is the supply constraints in the economy. There are a number of supply constraints especially in the food and infrastructure sectors which affect growth and inflation.
Guidance
RBI is caught in a classic ‘impossible trinity’ trilemma (more about it here). It has to forfeit economy’s growth inflation dynamic, informed monetary policy stance, in order to take care of external concerns.
RBI will roll back liquidity-tightening measures in a calibrated manner as forex markets stabilizes.
Q&A
Kaushik Das (DB): Hi, my question is regarding India’s reserve adequacy. As per the latest data, reserves can still cover about 6-7-months of imports but particularly worrying is the sharp increase in the short-term external debt on a residual maturity basis, which has touched $172 billion odd. So how concerned is RBI about this reserve adequacy position of India, especially when reserves are down further due to FX intervention?
The second question is regarding the potential growth rate of economy. Last year the expectation was that the potential growth rate has come down to about 6.5 to 7%. Does RBI think that the potential growth rate has fallen further in the wake of the developments of the last few months?
Dr. Urjit Patel (Dy. Guv): We actually feel that our reserves are adequate; 6.5 to 7-month of import cover is good, our short-term debt has increased but the short-term debt has been comfortably rolled over and refinanced over the last 3 years despite the high CAD. Even IMF, by the criteria they use, feels that our reserve position is adequate and comfortable.
On the potential growth, the RBI’s calculations and models suggest that it is about 7% now.
Sonal Varma (Nomura): I wanted to ask what is the risk that these tightening measures can precipitate into a bigger problem for the banking system, because of asset quality stress. What is the RBI’s view on that?
Dr. K. C. Chakrabarty: Anyhow, RBI will not be able to protect banks’ asset quality. Suppose, if you allow the exchange rate to depreciate, then the corporates, who have gone for ECB borrowings will default and banks asset quality will deteriorate. And if the rate has gone up then definitely because of the portfolio depreciation, they will be affected. We feel that HTM is more manageable because banks must understand the risk and we allow lot of amount to be put in the HTM category so this is a better option, which is our assessment.
Simon Flint (Dymon Asia Capital): Governor, you suggested that because of the large current account deficit, the rupee depreciation in some senses would be warranted. On the other hand, you do have some economists, I think including some in the Ministry of Finance who have argued that if you compare the present value of the rupee to the real effective exchange rate (REER), let us say which prevailed over 2004-2005, then the rupee is actually overshooting and is now undervalued. So I guess can you give us a sense of where you see rupee today relative to its fair value.
Dr. D. Subbarao: My answer to your very well argued question is quite short, that the RBI does not take a position on the level of the exchange rate. The depreciation of the currency has costs for the economy, but that is a different matter. We do not take a position on the exchange rate; there are various ways of calculating it including the way that you have indicated from the Ministry of Finance. All we said yesterday was that because of the current account deficit, the rupee would have depreciated and that has not happened because we have been able to finance it, and now that there is capital flow issues, those strains are coming into play, and the rupee is depreciating.
Rajeev Malik (CLSA): RBI has consistently maintained that it does not target any particular level and it is really only concerned with the volatility. The government on the other hand, every time the rupee slips, begins to get palpitations partly although not entirely, because of the impact on the fiscal front. How do you marry the two? At the end of the day a lot of that worsening because of rupee depreciation also has a feedback loop into how monetary policy is being conducted.
Dr. D. Subbarao: Both the government and the RBI are really on the same page as far as larger objective is concerned which is to control volatility. Neither the government nor the Reserve Bank is targeting any particular rate. And that is the message I think everybody listening in must take away.
Saturday, July 20, 2013
Weekly Market Commentary - Jul 15 - Jul 19, 2013
Markets were focusing on RBI actions, Fed comments on the macro front, while company's results and inflation numbers were eyed closely on the street. Sensex and Nifty ended this week up by 1.0% 0.3% respectively, while CNX Midcap was down by 0.7%.
Monday - Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 1.2%
Indian markets continued its upward movement for third consecutive day as inflation numbers released on Friday came within the markets’ expectation and comfort zone of RBI. WPI gain for June was 4.86%, slightly higher than May figure of 4.7%. CPI climbed to 9.87% in June from 9.31% in May.
This upward movement in inflation numbers has increased the problems for RBI, which is facing a dilemma of whether announcing a rate cut to stimulate investments, which may lead to more inflation, or go for a rate hike to help falling rupee, which will lower import cost and hence inflation. We will get to see what RBI does on July 30. My bet is small changes in the underlying rates, or there might be a cut in CRR.
Asian markets were up largely owing to release of Chinese GDP data that matched the forecast of 7.5%.
Tuesday - Sensex down by 0.9%, Nifty down by 1.3%, Midcap down by 1.3%
RBI went undercover (sort of) yesterday evening and increased the marginal borrowing rates for banks by 2% from 8.25% to 10.25% through Marginal Standing Facility (MSF). RBI, in its attempt to halt the declining rupee is trying every trick in trade available to it, led to sell off in the markets as borrowing became more expensive. RBI’s belief that excessive liquidity in the system is leading to rupee volatility also hurts the rate cut expectations.
Wednesday - Sensex up by 0.5%, Nifty up by 0.3%, Midcap down by 0.8%
Mixed day for markets as investors sentiment got a boost as govt gave a green signal to FDI in almost a dozen sector, including telecom and defence sector. Global sentiment was little cautious ahead of Fed meeting where all eyes were on Fed comments on timing of their plan of cutting down on bond purchases. Investors also focused on value picking the FMCG stocks while avoiding the banks and other interest rate sensitive space. Street was not very happy with HDFC Bank results, as its net profit grew by 30% y-o-y but gross NPA levels increased to 16% q-o-q indicating stress on their balance sheet. Stock went down 2.4%.
Thursday - Sensex up by 0.9%, Nifty up by 1.1%, Midcap up by 1.0%
Markets went up further after Fed comments on being flexible about the timing of cut in stimulus spending boosted the sentiments. Global markets went up largely as Fed suggests that it may not be too aggressive with tapering plans and will depend upon the performance of underlying economy.
Friday - Sensex up by 0.1%, Nifty down by 0.1%, Midcap down by 0.8%
The mood stayed positive for second consecutive day boosted by Fed comments. Bank stocks continued to face volatility as market is concerned about RBI current stance of monetary tightening. Street is worried that instead of rate cut may raise CRR. IT major TCS rallied by 5%, as it beat the street expectation of revenue growth while sustaining its margins, which reflect strong account management and execution capabilities.
Monday - Sensex up by 0.4%, Nifty up by 0.4%, Midcap up by 1.2%
Indian markets continued its upward movement for third consecutive day as inflation numbers released on Friday came within the markets’ expectation and comfort zone of RBI. WPI gain for June was 4.86%, slightly higher than May figure of 4.7%. CPI climbed to 9.87% in June from 9.31% in May.
This upward movement in inflation numbers has increased the problems for RBI, which is facing a dilemma of whether announcing a rate cut to stimulate investments, which may lead to more inflation, or go for a rate hike to help falling rupee, which will lower import cost and hence inflation. We will get to see what RBI does on July 30. My bet is small changes in the underlying rates, or there might be a cut in CRR.
Asian markets were up largely owing to release of Chinese GDP data that matched the forecast of 7.5%.
Tuesday - Sensex down by 0.9%, Nifty down by 1.3%, Midcap down by 1.3%
RBI went undercover (sort of) yesterday evening and increased the marginal borrowing rates for banks by 2% from 8.25% to 10.25% through Marginal Standing Facility (MSF). RBI, in its attempt to halt the declining rupee is trying every trick in trade available to it, led to sell off in the markets as borrowing became more expensive. RBI’s belief that excessive liquidity in the system is leading to rupee volatility also hurts the rate cut expectations.
Wednesday - Sensex up by 0.5%, Nifty up by 0.3%, Midcap down by 0.8%
Mixed day for markets as investors sentiment got a boost as govt gave a green signal to FDI in almost a dozen sector, including telecom and defence sector. Global sentiment was little cautious ahead of Fed meeting where all eyes were on Fed comments on timing of their plan of cutting down on bond purchases. Investors also focused on value picking the FMCG stocks while avoiding the banks and other interest rate sensitive space. Street was not very happy with HDFC Bank results, as its net profit grew by 30% y-o-y but gross NPA levels increased to 16% q-o-q indicating stress on their balance sheet. Stock went down 2.4%.
Thursday - Sensex up by 0.9%, Nifty up by 1.1%, Midcap up by 1.0%
Markets went up further after Fed comments on being flexible about the timing of cut in stimulus spending boosted the sentiments. Global markets went up largely as Fed suggests that it may not be too aggressive with tapering plans and will depend upon the performance of underlying economy.
Friday - Sensex up by 0.1%, Nifty down by 0.1%, Midcap down by 0.8%
The mood stayed positive for second consecutive day boosted by Fed comments. Bank stocks continued to face volatility as market is concerned about RBI current stance of monetary tightening. Street is worried that instead of rate cut may raise CRR. IT major TCS rallied by 5%, as it beat the street expectation of revenue growth while sustaining its margins, which reflect strong account management and execution capabilities.
Wednesday, July 17, 2013
RBI: Picking up fights it cannot win
In his famous book Thinking Fast and Slow, Daniel Kahnemann cites a study conducted on football goalkeepers. That study deduced that a goalkeeper would be able to save more goals, if he chose to stay standing at one place. However, a goalkeeper, like most of us, will rather risk a goal than to face embarrassment (however imaginary) of audience seeing him not doing anything. Our RBI governor Subbarao seems to be in that position.
Subbarao, in his fresh bid to boost rupee has indirectly led to hike in interest rates. Apparently, every other central banker in emerging market is busy raising the interest rates to stem the fall of their currencies. RBI has also announced that it is soon going to sell bonds to suck out the excessive liquidity from the markets, which it believes to be responsible for volatile rupee.
Indian businesses and citizens are facing less than comfortable investment climate, delays in policy implementations, which has led to higher unemployment or stagnant wages, and not to mention RBI’s key enemy, the one on which it was focused on till now, high inflation. Then, Fed Chairman Ben Bernanke issued a statement talking about tapering of bond purchases i.e. reducing stimulus spending which led to FIIs started exiting emerging markets in droves, taking the rupee down with them. Apparently, the yield gap between US debt and Indian debt has been reducing, making the Indian debt less attractive.
Now, if you are RBI governor, would you rather focus on spending your reserves on fighting off fall in your currency, which is not just India-specific phenomena or you rather try to polish bright the India investment story (by way of easing off liquidity). It is a classic buyback stocks vs. invest in your own plant situation. I will choose the latter. What inflows you lose from debt markets, you can counter them from inflows in stocks or FDIs if you start rebuilding your fundamental story. And that will in turn will help the rupee, by way of improved sovereign ratings, investment climate etc. etc. But, that is just me.
No doubt, that RBI’s current actions have impeded the case for rate cut announcement on coming July 30 meeting, but my guess is that RBI is going to announce some compensatory measure in the form of small rate cut or cut in mandatory CRR, now the inflation data is largely range-bound and within RBI’s comfort zone of sub 5%.
Subbarao, in his fresh bid to boost rupee has indirectly led to hike in interest rates. Apparently, every other central banker in emerging market is busy raising the interest rates to stem the fall of their currencies. RBI has also announced that it is soon going to sell bonds to suck out the excessive liquidity from the markets, which it believes to be responsible for volatile rupee.
Indian businesses and citizens are facing less than comfortable investment climate, delays in policy implementations, which has led to higher unemployment or stagnant wages, and not to mention RBI’s key enemy, the one on which it was focused on till now, high inflation. Then, Fed Chairman Ben Bernanke issued a statement talking about tapering of bond purchases i.e. reducing stimulus spending which led to FIIs started exiting emerging markets in droves, taking the rupee down with them. Apparently, the yield gap between US debt and Indian debt has been reducing, making the Indian debt less attractive.
Now, if you are RBI governor, would you rather focus on spending your reserves on fighting off fall in your currency, which is not just India-specific phenomena or you rather try to polish bright the India investment story (by way of easing off liquidity). It is a classic buyback stocks vs. invest in your own plant situation. I will choose the latter. What inflows you lose from debt markets, you can counter them from inflows in stocks or FDIs if you start rebuilding your fundamental story. And that will in turn will help the rupee, by way of improved sovereign ratings, investment climate etc. etc. But, that is just me.
No doubt, that RBI’s current actions have impeded the case for rate cut announcement on coming July 30 meeting, but my guess is that RBI is going to announce some compensatory measure in the form of small rate cut or cut in mandatory CRR, now the inflation data is largely range-bound and within RBI’s comfort zone of sub 5%.
Saturday, June 29, 2013
Weekly Market Commentary - Jun 24 - Jun 28, 2013
Monday - Sensex down by 1.2%, Nifty down by 1.4%, Midcap down by 2.6%
Market extended their losses from previous week as the global stocks continue to slid post Fed announcement of curtailing its bond buying program. Market seems to be ignoring the ifs and buts in the announcement and is running havoc with no plan in sight. Markets were also nervous when Chinese central bank made comments to the effect that liquidity in the system is reasonable, when China is facing liquidity squeeze. Central bank suggested fine tuning the system, which market assumed as reducing liquidity. Shanghai went down more than 5%.
Indian markets mirroring their global peers, are also under pressure due to rising CAD worries and fall in currency value. Brokers are of the view that FIIs have sold over $5 billion of debt and equities in June so far.
Tuesday - Sensex up by 0.5%, Nifty up by 0.3%, Midcap down by 0.6%
The Indian stocks went up in early trade as China tries to soothe investors’ nerves, short covering as F&O expiry nears. Markets also bought oil and gas stocks ahead of pending decision on gas price revision. Gas price were supposed to be revised previous week itself but the decision was deferred as Oil Minister was out for an official tour.
Wednesday - Sensex down by 0.4%, Nifty down by 0.4%, Midcap down by 0.0%
The Chinese central bank move to provide liquidity to some parts of its financial system to stabilize money market rates cheered the global market. Indian markets had a rangebound session as good news from China, short covering due to nearing F&O expiry was completely offset by rupee playing a spoilsport sliding below 60/$ level.
Thursday - Sensex up by 1.7%, Nifty up by 1.7%, Midcap up by 0.7%
Sensex and Nifty rallied as investors cheered the downward revision on US GDP data from 2.4% to 1.8%, which eased the concerns of reduced Fed spending. RBI also took advantage of this news and advanced its release of CAD data by one day. India's March quarter CAD came at $18.1 billion, 3.6% of GDP vs. consensus estimate of $21.7 billion or 4.4% of GDP. Corresponding figure for December quarter was 6.7%. The FY13 CAD stood at $88.2 billion and the Q4 Balance of Payments (BoP) stood at a surplus of $300 billion versus a $600 billion deficit year-on-year. Short coverings on the last expiry day of June series also buoyed the market.
Friday - Sensex up by 2.8%, Nifty up by 2.8%, Midcap up by 2.9%
Indian markets rallied as govt got its act together and approved doubling of gas prices from current $4.2/mmbtu to $8.4/mmbtu. The gas price decision was in limbo for several months now as various govt ministries, such as fertilizer, power and oil quarrel over the impact on their respective sectors. This decision was in tandem with the recent approval to power producers to pass on the imported coal cost to the consumers. The new gas pricing will get into force from April 1, 2014 and will work to attract investments in the sector as it makes several projects, big or small, across the country even more economical.
Rupee also rebounded to 59 levels after govt announced reforms to attract investments in the country and reduce country's dependence on imported gas (fuel). Govt has also initiated towards setting up of a coal regulator to settle disputed over quality and quantity of coal sold in the Indian markets. The poor quality of coal has led to squabbling between the country's premier energy producer NTPC and largest coal producer Coal India.
Saturday, June 22, 2013
Weekly Market Commentary - Jun 17 - Jun 21, 2013
This week begin with the RBI's decision to maintain status-quo on key policy rates and ended with the new gameplan from Ben Bernanke to taper down its bond purchase program.
I think chances of rate cut announcement in next RBI meeting in July have increased as inflation, trade deficit are trending downward and will move into RBI's comfort zone. Once the rupee worry is out of the way, I expect RBI to cut interest rates by at least 50bps.
Market reaction to Fed announcement of reducing easy liquidity it has splashed the markets with, has not come as a surprise to lot of investors. It is the timing, which caught few investors off-guard. US markets are not yet out of the rut, unemployment is still not back to pre-crisis range, business confidence has not improved significantly meaning none of the objectives of the QE has been achieved so far, in my view.
Sensex extended its losses and ended this week down 2.1%, while Nifty and CNX Midcap lost 2.4% and 2.3% respectively.
Monday - Sensex up by 0.8%, Nifty up by 0.7%, Midcap up by 0.6%
Market gave a thumbs up to the RBI decision of keeping the interest rates unchanged. RBI kept the repo rate intact at 7.25% while CRR was also unchanged at 4%. Although some investors were expecting the rate cut but overall the decision was considered prudent in wake of recent slump in value of Indian currency. Not only the rate cut would have done little to stimulate the domestic economy, I think capital inflows would have incurred more damage making the Indian rupee even less attractive in comparison to US dollar.
Tuesday - Sensex down by 0.5%, Nifty down by 0.6%, Midcap up by 0.5%
Once the market has chewed and digested comments from RBI meeting and decisions taken, the focus has now turned to Fed meeting, which has started today. Market is moving cautiously as Fed comments on tapering off of quantitative easing will be the next catalyst to decide market direction in short term.
Govt released its May trade deficit number which rose to $20.1bn from $17.1bn in April. Deficit widened as gold imports rose by 90% to $8.4bn while exports contracted.
Wednesday - Sensex up by 0.1%, Nifty up by 0.1%, Midcap up by 0.5%
Investors stayed largely nervous and markets remained flat for the day as focus stayed on Fed meeting. Fed will decide on whether they are going ahead with their plans to taper off QE and what will be the timelines. Market is expecting it to stay on until end of this year at least. Many investors hold QE responsible for excessive froth in the market and expect markets to return to normal after excessive liquidity is withdrawn.
Thursday - Sensex down by 2.7%, Nifty down by 2.9%, Midcap down by 2.4%
Sensex registered its biggest drop in 2 years as Fed discussed its timeline to taper down its bond purchase program (aka QE) later this year. Indian rupee also slumped and touched its new low of 59.93 to a dollar. Though timeline is little more aggressive than expected, and is replete with lots of ifs and buts, I believe we will return to normal markets where fundamentals will be the biggest drivers in stock and index values.
Friday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 1.5%
Market indices bounced back a little from yesterday's low amid FM's assurance that govt will do all it can to curtail the rupee fall.
Govt cleared a proposal that will allow power companies to pass on the cost of imported coal to customers. The move is a big relied to power generation companies struggling with high losses.
I think chances of rate cut announcement in next RBI meeting in July have increased as inflation, trade deficit are trending downward and will move into RBI's comfort zone. Once the rupee worry is out of the way, I expect RBI to cut interest rates by at least 50bps.
Market reaction to Fed announcement of reducing easy liquidity it has splashed the markets with, has not come as a surprise to lot of investors. It is the timing, which caught few investors off-guard. US markets are not yet out of the rut, unemployment is still not back to pre-crisis range, business confidence has not improved significantly meaning none of the objectives of the QE has been achieved so far, in my view.
Sensex extended its losses and ended this week down 2.1%, while Nifty and CNX Midcap lost 2.4% and 2.3% respectively.
Monday - Sensex up by 0.8%, Nifty up by 0.7%, Midcap up by 0.6%
Market gave a thumbs up to the RBI decision of keeping the interest rates unchanged. RBI kept the repo rate intact at 7.25% while CRR was also unchanged at 4%. Although some investors were expecting the rate cut but overall the decision was considered prudent in wake of recent slump in value of Indian currency. Not only the rate cut would have done little to stimulate the domestic economy, I think capital inflows would have incurred more damage making the Indian rupee even less attractive in comparison to US dollar.
Tuesday - Sensex down by 0.5%, Nifty down by 0.6%, Midcap up by 0.5%
Once the market has chewed and digested comments from RBI meeting and decisions taken, the focus has now turned to Fed meeting, which has started today. Market is moving cautiously as Fed comments on tapering off of quantitative easing will be the next catalyst to decide market direction in short term.
Govt released its May trade deficit number which rose to $20.1bn from $17.1bn in April. Deficit widened as gold imports rose by 90% to $8.4bn while exports contracted.
Wednesday - Sensex up by 0.1%, Nifty up by 0.1%, Midcap up by 0.5%
Investors stayed largely nervous and markets remained flat for the day as focus stayed on Fed meeting. Fed will decide on whether they are going ahead with their plans to taper off QE and what will be the timelines. Market is expecting it to stay on until end of this year at least. Many investors hold QE responsible for excessive froth in the market and expect markets to return to normal after excessive liquidity is withdrawn.
Thursday - Sensex down by 2.7%, Nifty down by 2.9%, Midcap down by 2.4%
Sensex registered its biggest drop in 2 years as Fed discussed its timeline to taper down its bond purchase program (aka QE) later this year. Indian rupee also slumped and touched its new low of 59.93 to a dollar. Though timeline is little more aggressive than expected, and is replete with lots of ifs and buts, I believe we will return to normal markets where fundamentals will be the biggest drivers in stock and index values.
Friday - Sensex up by 0.3%, Nifty up by 0.2%, Midcap down by 1.5%
Market indices bounced back a little from yesterday's low amid FM's assurance that govt will do all it can to curtail the rupee fall.
Govt cleared a proposal that will allow power companies to pass on the cost of imported coal to customers. The move is a big relied to power generation companies struggling with high losses.
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