17 February,2014 09:00 AM IST | | Alex K Mathews
At home, markets are awaiting the interim budget and the elections, while globally all eyes are on the Fed’s new chief
The Indian markets this week also remained in a tight range tracking the global cues. Other reasons were Foreign Institutional Investors reducing their long positions ahead of the interim union budget and general elections. Nifty this week closed at 6048 down around 0.44 per cent on the weekly basis.
The immediate resistance for the Nifty will be at 6115, and if it can move above this level with volumes then Nifty may move up sharply towards 6200 plus in the next week. On the other hand a move below 5978 can cause intensified sell-off.
Contagion
In order to restrict contagion risk, the RBI prescribed caps on banks' transactions with and exposure to its group entities. The single group entity exposure of the banks has been capped at 10 per cent of net worth (capital and reserves) of their regulated financial services units and in the case of the exposure to non financial and unregulated financial companies, the limit will be 5 per cent of the net worth.
Taking into account both financial and non financial group entities, the aggregate group exposure cap has been fixed at 20 per cent of the net worth. The guidelines are effective from October 01 of this year and frequent breaches of the prescribed limit may give way to penalty by the central bank. According to Reserve bank of India, a group is an arrangement involving two or more entities that has subsidiary-parent or associate joint venture ties whereas a group entity is any entity involved in such ties.
IFCI
On the jump in the profit on the sale of long-term investments, IFCI reported an 87 per cent increase in the net profit for the quarter ended December 31, 2013. The net profit of the company stood at Rs 142 crore as compared to Rs 76 crore in the same period last year. The total income of the company also rose 24 per cent to Rs 803 crore against Rs 648 crore in a year ago period. IFCI in the third quarter has booked profits on sale of investments of Rs 131 crore against Rs 60 crore in the previous fiscal.
Deficit
The trade deficit for the month January of this year narrowed on the back of a rise in exports. The trade deficit for the month stood at $ 9.92 billion against $ 18.9 billion in the same period last year. The exports grew by 3.79 per cent in January to $ 26.7 billion whereas the imports fell by 18.07 per cent to $ 36.6 billion. The trade gap fell mainly on the decline in the gold and silver imports; where their imports dipped by 77 per cent to $ 1.72 billion in the month under review from $ 7.49 billion in the same month last month.
Inflation
On the back of moderating food prices, India's consumer price inflation eased to a two-year low. The retail inflation for the month January stood at 8.79 per cent as compared to 9.87 per cent in the previous month. But the core inflation remained around 8 per cent which was uncomfortably high according to RBI governor. The 13 per cent fall in the vegetable prices made the food inflation to fall to 9.90 per cent from 12.16 per cent in December.
Global
In the global front, all the markets were waiting for the Federal Reserve's new chairwoman's first testimony. The new head said that she expects a "great deal of continuity" with her predecessor and in order for the economy to strengthen enough to withstand the pullback in the stimulus the interest rates should be kept low for some more time. Also the comment from the US house speaker that he would allow a vote to raise the borrowing limit of the country without any conditions attached supported the markets.
The rupee is looking strong and it is likely to test 61.80 in the near term, reduction in trade deficit, lower WPI will keep rupee strong. Investors can buy 62 put options. Max India, ABCIL and Bajaj Electricals came out with good set of numbers and can be bought for the medium term.
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).
