Crash and recovery

The last week saw domestic markets under pressure because of Chinese concerns. Sensex had its biggest crash in seven years and third biggest ever fall in the BSE benchmark index. But the extreme oversold conditions and the small recovery in the global markets supported the Indian markets. Nifty may face resistance at 8050 and 8230 and having support at 7790 and 7600.

The government sold its 10 per cent stake in Indian Oil Corporation as a part of its disinvestment programme. The government was looking to sell up to 242.79 million shares through the issue where it holds 68.57 per cent stake in the company.

Divestment
This was the fourth divestment issue by the government this fiscal year and second in the current month. Earlier it sold its stake in Rural Electrification Corp LTD, Power Finance Corp and Dredging Corp of India. The government raised over Rs 9300 crore from the sale where the auction floor price was at Rs 387. Together with other three disinvestments since April, the government mopped up over Rs 12600 crore.

According to a report, the country's manufacturing sector growth has been improved both in terms of month on month and yearly basis in August. The yearly SBI composite index, an indicator for manufacturing activity in the country increased to 53.10 from 49.7 in the previous month.

The monthly index stood at 52.2 against 46.7 in July. The pick up in the economic momentum was supported by the capital goods sector, whereas the pressure remains due to the excess manufacturing capacity and lower opportunities. An index value of 42 to 46 means moderate decline, 46 to 50 shows a low decline and 50 to 52 regarded as low growth. The level 52 to 55 shows a moderate growth. Above 55 shows high growth.

Official data says Foreign Direct Investment (FDI) to the country increased by 6.5 per cent in June. The FDI level stood at $2.05 billion as compared to $1.92 billion in June 2014. In May the FDI level was at $3.85 billion. In the April-June period of the current fiscal the FDI to the country grew by 31 per cent to $ 9.50 billion as compared to $7.23 billion in the corresponding period last year.

Foreign Direct Investment
Among the sectors, computer software and hardware received maximum FDI of $2.55 billion during the first quarter of the current fiscal which was followed by automobile ($1.09 billion) and trading ($897 million). During the financial year 2014-15, foreign fund inflows grew at 27 per cent to $30.93 billion as against $24.29 billion in 2013-14.

Adani Ports has found its space in the index which may replace NMDC. NSE announced that Adani Ports, Reliance Power and Union Bank may exclude from Junior Index which will be replaced by Marico, NMDC and Sundaram Finance. South Indian Bank will be included in the Nifty Midcap 50 index replacing Crompton Greaves. Crompton Greaves would be dropped from CNX infrastructure index. The India Index Services & Products said that changes are decided by the index maintenance sub committee as a part of its periodic review and the changes will be effective from September 28.

Chinese concerns
On the global front, the main concerns were regarding China. In China, the news that factories data fell to its fastest pace since 2009 was the first blow. Also the Chinese central bank reduced its interest second time in two months. On the US front, the consumer confidence increased to a seven month high in August and the new single home sales rebounded in July. Also the comments from a US central bank official that a September month rate hike is unlikely, provided support to the markets.

Industrial Production, construction orders, housing starts, Nikkei manufacturing and services data will be the major data in the Japanese front. For Chinese markets, manufacturing and non-manufacturing PMI will be on the watch out list. Higher level selling can be expected in the banking sector and metal and OMC sectors especially from today afternoon or from tomorrow morning.

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).