With the overall sentiment negative, markets fell below the 5400 mark to touch the lowest point since May 26, this year
With the overall sentiment negative, markets fell below the 5400 mark to touch the lowest point since May 26, this year. Utter lack of interest due to expectations regarding major economic data brought negativity in the market.
The global scenario was giving no support as most of the foreign markets were making lower lows on deepening European debt worries. The major event was the Reserve Bank of India (RBI) decision on interest rates during its mid quarter review on Thursday.
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RBI had increased the Repo rate by 25 bps to 7.5 per cent, which will automatically increase reverse repo by 25 bps to 6.5 per cent.
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Even though the hike was in line with the expectations or at the lower end of the expected range of 25-50 bps, markets did not cheer this as such frequent hikes will negatively impact the growth activities in the country and also will directly affect the profits of the companies relying on borrowed money.
Control
Also, the RBI hinted at further interest rate hikes, if inflation doesn't come under control. During last week we also saw the inflation number for the month of May at 9.06 per cent against 8.66 per cent in April. However the food inflation for the week ended June 4 was at 8.96 per cent as against 9.01 per cent in the previous week.
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Food inflation has eased a bit, as the monsoon has started in most parts of the country and is expected to bring down the food prices even further. Higher interest rates can trim the outlook of Auto stocks like Tata Motors, Maruti and Mahindra and Mahindra.u00a0
High interest rate regime is also a cause of concern for realty, banking and financial sector stocks to a certain extent.
Recovery
Nifty kept on making lower lows everyday indicating a negative trend and below 5332 it can fall towards 5300 levels. The index is oversold with seven-day RSI below 25 and so we may see a technical bounce back todayu00a0 or on Tuesday.
But a recovery indication is yet to be seen. DOW Jones saw technical bounce back on Friday, but it has to come towards its 200 DMA of 11725.
There are no major cues to cheer the markets in Asia as well as US. Investors should not refrain from buying stocks and must consider it as a chance to get good stocks at better valuations.u00a0
Weak US fundamentals and debt crisis of EU zone may have devastating effects on global equity markets. Just keep in mind the words of Warren Buffett, "Be fearful when others are greedy and greedy when others are fearful".u00a0
Tax
The only positive thing for the markets are the advance tax numbers. The numbers for the top 100 companies rose by around 13.5 per cent.
On breaking it down into sectors, despite fears on more loan defaults, the financial sector is doing well. The technology sector saw good times. Infosys saw tax payments rising over 33 per cent and the first installment by TCS doubled.
Metals
Precious metals were positive during the week but the increase in price was limited. It moved on growing worries on Greece and overall European, Asian and US sentiment towards it. Gold has resistance at $1530-$1532; if it can move above these levels then it can move towards $1538 and $1542. The major support for the gold will be at $1503.
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The rise in Chinese IIP numbers brought buying in base metals and ignored the Chinese move to raise the capital the banks are required to keep. Crude is at its lowest point since February 22nd 2011 and it started falling on reports that Saudi Arabia may unilaterally increase output to 9.5-10 mb/d in July from April's 8.8 mb/d. Technical bounce back can be seen from current levels but if it fails to stay above $90 then it can fall towards $84.
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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All matter published here isu00a0 for educational and information purposes only and under no circumstances should be used for actual trading or making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment or trading decisions, based on information published here.
