20 Oct 2014

Diwali around the corner

With Diwali approaching there has been little corporate news other than results announcements. Yet the ingredients for a boost are coming together. The recent market setback should be viewed as an opportunity. Inflation moving favourably, oil price retreating, eventually these movements will bring monetary easing and a further policy boost to GDP growth.

The last week saw a sustained selloff in equity markets as investors panicked in the face of widespread evidence of economic fragility and speculation about the imminence of monetary tightening in key economies. In the event, reassurance from central bankers calmed markets at the close but not before heavy losses had been incurred. Amidst all of this, Indian markets were brittle, as the Nifty shed 80 points to close down 1% at 7780 after trading in a range of 2.6%. 

Compare this to its recent highs around 8300 and we remain short of a 'correction', down 6.3%. This week’s fall was driven by net equity sales of $405mil by FIIs, as domestic institutions were net buyers of $281mil. Market breadth was negative though not deeply so: declining stocks were ahead of advances by 3:2. There was heavy concentration in three stocks, Reliance, TCS and HCL Tech, which were sold heavily on disappointment with quarterly results; together they contributed 80% of the net points’ loss. Unlike developed markets, volatility has remained subdued. By the market’s close, rumours of substantial gains in two state elections by the governing BJP were boosting sentiment for next week’s opening.