28 Mar 2014

India continued its optimistic election-driven run

Global equity markets were a bit glum for most of the week but picked up on Friday on expectations that Chinese policy makers might act to revive their flagging economy. Also, concern about deflation in Europe prompted hopes of more policy action which boosted equity markets to 1-2% gains on the week and strengthened the Euro ahead of an ECB policy meeting. India, meanwhile, continued its optimistic election-driven run, even if expectations for the RBI monetary review on April 1st are muted. The Nifty added 203 points to move 3.1% ahead, hitting a new intra-day record before closing at 6696 after trading in a range of 3.4%. FIIs were again to the fore, buying a net $974mil in cash equity as domestic institutions were sellers of only $374mil. Average daily trading volumes were well above the twelve-month moving average at $2.9bn. Volatility edged higher: the India VIX opened at 16 and traded down to 13 before rising sharply on the options expiry, to close the week at 19. Market breadth was very strong with advances ahead by five to one. There was some concentration, with five stocks, representing just 19% of index capitalization contributing 43% of the index points’ gain. The new index futures contract was not especially strong, closing at a premium of barely one percent to cash.

21 Mar 2014

Interest rate rises may come sooner than previously thought

Markets rode out a rather weak western response to the Ukrainian crisis this week but the biggest impact came from the first press conference to be given by the new US Fed Chairman. This caused some concern with words appearing to contradict to tone of the written statement, leading to speculation that interest rate rises may come sooner than previously thought. Western markets recoiled from elevated levels, though Russia, Brazil and Germany gained. India continued its pre-election hovering with the Nifty shedding eleven points to close just 0.2% lower at 6493 after trading in a range of less than 2%. Average daily trading volume held at the $2.7bn level of the previous week as FIIs sustained their optimistic election positioning by purchasing a net $459mil of cash equities, $225mil from domestic institutions. Volatility was stable, the India VIX trading up to 18 early on before slipping back to close unchanged on the week at 16. Market breadth was even, with advances equalling declines; one stock, ITC, contributed 27 points on the upside, while four stocks, representing 14% of the index, subtracted 60 points. Nifty futures closed at a premium of 2% to cash.

A hailstorm in Maharashthra and some surrounding areas may have damaged crops, a key concern at a time when declining inflation is expected to help revive growth; a 10% rise in vegetable prices could add 54 basis points to CPI. A further worry is that meteorologists are starting to warn of an El Nino effect on this year’s monsoon; in the past, this has reduced Agricultural GDP by as much as 2.5%. The government is launching an ETF, investing in 10 blue-chip stocks, aimed at raising $500mil for its disinvestment programme. The fund is being offered with 5% discount to early investors and as attracted half-a-dozen cornerstone investors, subscribing about 25% of the target.  FDI in January showed a slight increase year on year, to $2.2bn; the FY14 year-to-date figure, however, is 2% down from $19.1bn to $18.7bn.

14 Mar 2014

Uncertainty and turbulency

Stock markets had a bad week on uncertainty about the Chinese economy and, especially, concerns about the Ukrainian crisis and the prospects for a prolonged diplomatic stand-off at least. US equities were off about 2%, UK about 3% and Japanese stocks gave up more than 6% on the week. In classic risk-aversion mode, gold and crude oil gained and industrial metals were weak. In currency markets, the Swiss Franc and Yen were strong, the US Dollar slightly weak and the ECB had to talk down the Euro, as it approached levels which might threaten its inflation target. While the ECB may accidently have exposed its currency strategy, the Chinese central bank made an explicit move by broadening the Yuan’s target trading band, ostensibly a move towards allowing market forces to determine the currency’s value.

Against such a turbulent background, the Indian market seemed like a beacon of stability. The Nifty lost 23 points, to close just 0.4% down at 6504, after trading in a range of 2.2%. The Rupee was stable over the week, at 61.2 to the dollar. Average daily trading volumes were above the trailing twelve-month average, at $2.7bn as the market saw sustained FII buying of $689mil of cash equities, mostly from domestic institutions which were sellers of $576mil. Market breadth was positive, with advancing counters just ahead of declines. These numbers hid sharp concentrations, as the IT sector worth 19.5% of the index, cost the index 67 points following a less than optimistic statement of trading outlook from the Chairman of Infosys (-9.3%). On the upside, three stocks, L&T, HDFC Bank and ITC, together worth 13% of the Nifty index, added 36 points on the week. In spite of the global frisson, volatility subsided in India, as the India VIX retreated a point on the week, to close at 16. Three months’ Nifty futures, now straddling the election results announcement, closed at a premium of 1.7% to cash

7 Mar 2014

Global equity markets had very strong week

In spite of the troubles in the Ukraine, global equity markets had a very strong week. The S&P hit an all-time high on strong numbers for US unemployment claims while anything Russian was in sharp decline. India saw a brief setback on Monday but then the Nifty climbed steadily to add 249 points for the week, closing 4% higher at 6527 after trading in a range of 4.6%. Average daily trading volumes rose above the trailing average to reach $2.6bn as sustained FII buying saw a net inflow of $389mil for the week; unusually, we also saw net investment of $71mil from domestic buyers. Market breadth was very strong as advances outran declines by four to one. Five stocks, representing just 22% of Nifty market cap contributed 62% of the points’ gain; exporters, including IT and Pharma companies suffered on currency strength. Volatility rose from the previous week’s lows, the India VIX rising sharply from the opening low of 14, to close at 17, for a gain of three points on the week. In spite of speculation that the market was discounting a favourable election result, the three month futures contract, which now spans the entire election period, closed at a premium of less than 1%.