17 Feb 2013

Out of bonds into equities

Even as more and more commentators talked up the rotation out of bonds into equities worldwide, equity markets trod water this week, most staying within 1% either side of the gain line. India was again testimony to narrowing breadth, as the Nifty shed 16 points to close 0.3% down at 5887 after trading in range of less than 1%. Average daily trading volumes were back at recent lows of $2.3bn in spite of FIIs buying a net $505mil; domestic institutions sold $351mil. Market breadth saw three to one declining stocks, with two counters worth just 6% of index capitalization contributing 21 points on the upside and another two, comprising 9% of the index dropping 17 points between them. Volatility was flat at, with the India VIX around 15 for the week. Three month index futures closed a premium of just 1%; interestingly, the short contract was at a slight discount to cash. The Budget is less than two seeks away and will set the tone for the market through the next general election; in order to take advantage of opposition disarray, Congress may call the election sooner that expected.

13 Feb 2013

Equity markets moving sideways

Equity markets had a flat week, moving sideways as investors turned cautious, with political concerns in Italy and Spain re-igniting EU uncertainty. In India, following the start of monetary easing, investor attention turned towards the impending Union Budget, an important test of government reform commitment. Reflecting the global caution, the Nifty shed 95 points to close 1.6% down at 5904, after trading in a range of 2.2%. Average daily trading volumes softened, to $2.6bn, even as FIIs sustained their recent buying, a net $622mil of cash equity fed by sales of $704mil by local institutions. Market breadth was again narrow, with declining stocks well ahead of advances, by over three to one. This point is worth emphasising again because it is making a manager’s job very difficult: two stocks, together representing just 10% of index market cap, contributed more than 25 points to the weekly index movement. On the downside, just four stocks, representing 20% of market cap cost the index more than 53 points. Volatility, on the other hand, remained low, as the India Vix opened at 14 and traded around 15 for the week before closing there. Index futures closed at a premium of 1.2% to cash.