18 July,2011 07:51 AM IST | | Alex K Mathews
Finance Minister's statement fails to boost markets
The markets had opened on a negative note and had a mixed session all of last week. Global events and domestic economic data kept the sentiment largely negative. Cues on the European as well as the US front made it difficult for the markets to gain considerably.
Corporates
On the domestic front, we had the corporate results of majors like Infosys, TCS and Bajaj Auto, which were below expectations. In the case of Infosys, the Q1 net profit as per International Financial Reporting Standards fell 5.3 per cent to Rs 1722 crore on 3.2 per cent growth in revenue.
Pranab Mukherjee
Then, we had the IIP numbers for the month of May, which fell to 5.6 per cent against 8.5 per cent a year ago. The manufacturing and mining were the under performers with the manufacturing sector growing by 5.6 per cent in May against 8.9 per cent last year and the mining sector growing by 1.4 per cent against 7.9 per cent previously.
This dismal performance prompted our Finance Minister (FM) Pranab Mukherjee to say that the government is taking steps to boost the manufacturing sector.
Even after this, our markets fell in the initial days of last week. Later, towards the end of last week, we had inflation numbers, both monthly and weekly.
The weekly inflation was at 8.41 per cent in the week ended July 2 against 7.61 per cent in the previous week. The rise is being attributed to costlier fruit, milk and protein-centric foods like eggs and meat.
Prices
On the other hand, the monthly inflation as measured by the wholesale price index, rose 9.44 per cent in June, up from 9.06 per cent in May, which also added to the negative sentiment. The recent rise in diesel prices and LPG prices will be reflected even more in the coming weeks inflation figures.
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Now, it is widely expected that RBI at its quarter monetary policy review on July 26, may hike the interest rates further by around 25 to 50 bps points to contain rising inflation. The rains, which were expected to bring down commodity prices, are still to play their part.
According to the weather bureau, the rains were 19 per cent below normal in the week till July 13 2011, which is better when compared to the 24 per cent below normal rain recorded in the week to July 14, 2010.
Sentiment
Rising inflation followed by rising interest rates will keep the sentiment down. Nifty is in consolidation mode and if Nifty closes above 5650 then we may see Nifty trying to re-test 5733 (200 DMA) and more. On the other hand, the support is there at 5537, 5500 and 5475 levels.
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Investors can buy both Nifty 5600 call option and Nifty 5600 put option July series together at rupees 67 and 72 respectively.u00a0 The trading position can give profits if Nifty moves above 5749 or below 5461.
Rating
Recently, we saw Moody's investor service downgrading Greece's debt. This week they went on to downgrade Ireland's credit status by one notch from Baa3 to Ba1. Then we heard S&P putting US AAA debt rating on watch for a possible downgrade after Moody's placed US AAA rating on review.
On the economic data front also, the European IIP fell to 0.1 per cent from 0.2 per cent and the German WPI slipped to -0.6 per cent from an estimated -0.2 per cent. On the US front, the import price index declined at a slower pace of -0.5 per cent against an estimated fall of -0.6 per cent and the retail sales rose to 0.1 per cent against -0.1 per cent.
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The mostly watched initial jobless claims declined to 405000 against 427000 previously. China showed some good economic numbers with industrial production rising to 15.1 per cent against 13.3 per cent, previously, retail sales rising 17.7 per cent against 16.9 per cent previously.
Gold
On the commodity side, gold has already beached the all time high $1575.79 and tested a new high on Thursday at $1594.16. The precious commodity can test $1629.36 and $ 1648.15 in the medium term. The natural rubber price may tank towards Rs 210 or even lower during the high yielding season.
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Tyre manufacturers stocks like Apollo Tyres, MRF and Ceat are likely to benefit.u00a0 Counters like Alstom Projects, Asian Paints, Hikal Logistics, Bata India and Shree Cement look firm and more upside is likely.
Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd. The author may have a vested interest in investments he has recommended.
Feel free to e-mail him at alex@geojit.com. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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