Expect a small rally
The market closed lower in the week as global ratings agency Standard and Poor’s (S&P) lowered India’s sovereign ratings outlook to negative. On the last trading day of the week, the IMF lowered the country’s growth forecast for 2012 to 6.9% due to investment slowdown.
The Sensex ended 240 points (1%) lower at 17,134 and the Nifty closed 100 points (2%) down at 5,191. The market is expected to remain cautious with minor gains in between.
Weak global cues and the fear of the proposed tax implications, which prompted Macquarie to exit from its short positions in the Indian single stock futures, led the market lower on Monday. A rally in IT and technology stocks following better-than-expected results from TCS helped the benchmarks brush aside early hiccups and settle higher on Tuesday. While the news of the S&P downgrade pushed the benchmarks lower in late morning trade, the market clawed back and finished with a minor loss on Wednesday.
Selling pressure in post-noon trade pushed the market lower, but a recovery in late trade helped the indices settle with minor losses on Thursday. Although the market snapped its two-day losing steak, it pared off all the morning’s gains on dismal global cues and finished almost unchanged on the last trading day of the week.
In the sectoral space BSE IT gained 2% while BSE Realty (down 6%) and BSE Capital Goods (down 5%) were the main losers.
Among Sensex stocks, TCS (up 11%), Sun Pharma and Reliance Industries (up 1% each) were the gainers. The stocks which ended lower were GAIL India (down 9%), DLF (down 8%), Bajaj Auto, BHEL (down 7% each) and State Bank of India (down 6%).
The Nifty toppers were TCS (up 11%), Asian Paints (up 5%), Sun Pharma, RIL (up 2% each) and HCL Technologies (up 1%). The losers were led by GAIL India, IDFC (down 9% each), DLF, Punjab National Bank and Reliance Infrastructure (down 8% each).
Global agency S&P on Wednesday lowered India’s rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen. The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings expensive for Indian Inc. It may also have implications for the capital market.
Meanwhile, another ratings agency Moody’s on the same day said that India is growing but below its potential as politics is weighing on the economy and termed the national government as the “single biggest drag” on business activity. India's outlook is still underachieving and poor management has dragged economic growth to below potential, Moody’s Analytics senior economist Glenn Levine said.
Cautioning that governance concerns have weakened business sentiment in the country, the International Monetary Fund (IMF) on Friday lowered India’s growth projection to 6.9% for 2012. The IMF in January had pegged Indian economic growth to expand 7% for this year.
Apart from some financial reforms and measures to broaden the use of public-private partnerships announced in the 2012-13 Budget, the implementation of reforms related to infrastructure is likely to proceed slowly, the multilateral funding agency noted.
Macquarie’s $1.5 billion Asia hedge fund has exited its short positions in Indian stock futures and instead will use a futures contract linked to India’s 50-share NSE index Nifty on the Singapore Exchange to continue its short exposure to India, reports indicated.
The Macquarie Asian Alpha Fund has taken this step following concerns of foreign investors over new proposed tax rules to retrospectively tax mergers and acquisitions of companies where there is an underlying asset located in India.
In corporate news, TCS posted a healthy 21.9% rise in net profit for 2011-12 at Rs10,638.20 crore and said it is on track to outperform the industry revenue growth of 11%-14% set by industry body Nasscom for 2012-13. The company also became the first Indian IT company to cross the $10 billion milestone posting annual revenues of $10.17 billion in 2011-12.
The Bangalore-headquartered IT major Wipro posted a net profit of Rs1,480.90 crore for January-March quarter, against Rs1,375.40 crore during the same quarter last fiscal. The company’s revenue grew by 18.84% to Rs9,836.30 crore for the quarter under review, from Rs8,276.3 crore in the year-ago period. It forecast a muted revenue growth for April-June period as it sees the business environment to be ‘volatile’.
ICICI Bank reported 31% jump in net profit to Rs1,902 crore ($362.3 million) for the fourth quarter of 2011-12, driven by rise in both interest and non-interest income, and higher dividends from subsidiaries. Non-core income, which includes gains from treasury and fees apart from higher dividends from the subsidiaries, rose nearly 36% to Rs2,230 crore, while the core net interest income grew at 24% to Rs3,105 crore during the quarter, the country’s largest private lender said.
On the global front, US stock closed higher in the week, supported by robust corporate earnings reports, positive consumer sentiment report and despite weak GDP numbers for the first quarter which slowed down to 2.2%.
The 5,300-5,400 points area is proving a bottleneck for the bulls and the 5,130-5,185 area for the bears. A breach of either of these ranges (in close) would result in a swift move in the direction of the break
S&P Nifty close: 5,209
Short Term: Sideways Medium Term: Sideways Long Term: Down
The Nifty opened flat and sold off on the very first day of the week (we had envisaged a top on 23rd-24th) itself. A breach of the weekly support of 5,272 saw the Nifty dip marginally below the S1 level in a matter of a couple of hours. However, it continued to drift aimlessly within band and finally closed 81 points (-1.55%) in the red thus wiping out all the gains of the previous week.
The sectoral indices which outperformed were CNX IT (+1.55%) and CNX FMCG (+0.02%) while the gross underperformers were CNX Reality (-6.22%), CNX Infra (-5.32%), CNX Metal (-2.97%), CNX PSE (-3.22%) and CNX MNC (-2.78%). The weekly histogram MACD turned lower, below the median line, which is a warning sign for the bulls that they have to pull back things at the earliest. The volumes during the fall were flat typically signifying the dull sideways movement witnessed for the past few weeks.
Here are some key levels to watch out for this week
1. The Nifty is facing stiff resistance in the 5,300-5,340 area which has to be taken out in close for further upsides.
2. Weekly averages have become positively phased and the price has managed to claw back above them, keeping the bulls’ hopes alive, though whisker thin.
3. Unless and until the 5,378-5,385 points range is taken out in close the bears would hold the edge and a break of the recent low of 5,135 points (in close) would set the cats amongst the pigeons.
The dullness continued as expected and there are not tell-tale signs as yet that we might be readying for a significant directional move as yet. Broadly the 5,300-5,400 point’s area is proving a bottleneck for the bulls and the 5,130-5,185 area for the bears. A breach of either of these ranges (in close) would result in a swift move in the direction of the break. Till then just trade keeping these levels as references and wait for a trending move to begin. Volatility is likely to increase on the 2nd-3rd May but would provide opportunities only for the very short-term traders.
(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com)
The Food Safety and Standard Act, 2006, has been introduced to replace the Prevention of Adulteration Act, 1954. “Ironically, the major challenge of the menace of adulteration has not been dealt with in the new Act but rather more emphasis has been laid down on ‘mis-branded’ food,” the Confederation of All India Traders said
A traders association has urged the union health ministry to constitute an expert committee to look in to the provisions of the Food Safety and Standards Act, 2006, and has also announced nationwide protest against it. Calling the provisions as draconian, unrealistic and impracticable, the association feels that it will impact the businesses of small and medium traders. The Act proposes separate licences for each enterprise and separate audit reports for various products.
BC Bhartia, secretary general, Confederation of All India Traders (CAIT) said, “The Act in question prescribes the traders to prepare an audit report, obtain clearance from state pollution control board, get a no-objection certificate from the municipal corporation, medical certificates of workers, graduate technologist and a separate audit report for products made from milk, which is not possible under the Indian food conditions. The Act is framed is in utter disregard of the ground realties and will promote big corporate houses to enter into food business.”
It further added that, “This would trigger further corruption and would allow government machinery to harass the traders-said CAIT,” he added.
The traders association has called upon union health minister Ghulam Nabi Azad to constitute an expert committee of food policy analysts, government officials and representative of trade to review the provisions of the Act.
The Food Safety and Standard Act, 2006, has been introduced to replace the Prevention of Adulteration Act 1954. “Ironically, the major challenge of the menace of adulteration has not been dealt with in the new Act but rather more emphasis has been laid down on ‘mis-branded’ food, which does not fall under the ambit of ‘adulteration’. Adulteration is a heinous crime which cannot be misbranded because of distinction in implications of classification. Such a provision will encroach upon the rights of the consumers in the country. The Act will promote adulteration or demote it, is a question?” CAIT said in a release.
CAIT is conducting a national conference of trade leaders on 10th and 11th May at New Delhi to discuss a national agitation. Earlier, traders from Rajasthan and Madhya Pradesh had already held a trade bandh for four and three days, respectively. On 25th April, Madhya Pradesh-based MP Sumitra Mahajan has also raised the issue in the Lok Sabha.