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CAD triples to record high of 4.5% of GDP in Q4FY11-12

Commenting on the data global financial services firm Nomura said, “The outlook for net capital inflows depends as much on the domestic pull factors as on the global push factors”

 

Mumbai: Reflecting deterioration of the external sector, India’s current account deficit (CAD) more than tripled to an all-time high of 4.5% of the gross domestic product (GDP) in last quarter of 2011-12 on back of rising oil and gold imports, reports PTI.

In 2011-12, CAD—which represents the difference between exports and imports after considering cash remittances and payments—stood at 4.2% of GDP at $78.2 billion, as against the government’s estimate of 4%.

“On account of the large trade deficit, the CAD rose sharply to $21.7 billion in Q4 from $6.3 billion in Q4 of 2010-11. At this level, the CAD worked out 4.5% of GDP (the highest ever) in Q4 of 2011-12 as compared with 1.3% a year ago,” the Reserve Bank of India (RBI) said while releasing the Balance of Payment (BoP) statement on Friday.

The CAD, according to RBI, “widened to the highest ever level both in absolute terms and as a proportion of GDP.” It was $46 billion or 2.7% of the GDP in 2010-11.

Commenting on the data global financial services firm Nomura said, “The outlook for net capital inflows depends as much on the domestic pull factors (investment climate and growth outlook) as on the global push factors.”

Recent statements from prime minister Manmohan Singh regarding reforms, said, “have been positive, but concrete action on this front is still needed to reverse India’s macro-economic imbalances.”

According to Emkay Global Financial Services, the balance of payment deficit might continue for at least two more quarters.

“Despite the slowdown in economic activity and rupee depreciation, growth in merchandise imports moderated only mildly from 27.7% in Q4 of 2010-11 to 22.6% in Q4 of 2011-12, reflecting inelastic demand for gold and oil,” the RBI said.

Imports of oil precious metals together contributed nearly 45% of total imports in 2011-12.

User

Excellent area to exit longs and build shorts from a trading perspective

The weekly averages continue to be negatively phased despite the sharp rise indicating that one should exit long positions at current levels as well as any further rise

 


S&P Nifty close: 5,278
 

 

Market Trend
Short Term: Up               Medium Term: Down                    Long Term: Down

As we had envisaged last week, 25th and 29th June turned out to be extremely volatile days. The Nifty crossed the 5,190-point mark which saw the shorts getting squeezed as the Nifty gained for the fourth week in a row from the lows made during the week ended 8 June 2012. The benchmark finally ended a smart 132 points (+2.58%) in the green in a week of volatile trade. Volumes were however marginally higher than last week implying that the rise is of corrective nature even though it has survived for four weeks (we had mentioned 5-6 weeks) now.

The sectoral indices which outperformed were CNX Media (+6.06%), CNX Metal (+4.15%), CNX Commodities (+3.65%), CNX Finance (+3.07%), CNX Energy (+3.06%), CNX PSE (+2.93%) and CNX Infra (+2.92%) while the gross underperformers were CNX Auto (+1.16%) and CNX PSU Bank (+1.16%). The histogram MACD has moved marginally above the median line but the short term oscillators are overbought. This implies that the possibility of a higher bottom in the ensuing decline has increased.

Here are some key levels to watch out for this week

■ As long as the S&P Nifty stays above 5,220 points (pivot) the bulls need not worry. They should use this as a stop loss on longs.

■ Support levels in declines are pegged at 5,154 and 5,029 points.

■ Resistance levels on the upside are pegged at 5,344 and 5,411 points.

Some Observations

1. The Nifty has completed the targets of 5,098 (38.2%) and 5,200 (50%) and has come very close to 5,301 (61.8%) points retracement of the decline from 5,629-4,770 points.


2. Surprisingly it crossed the 5,260 points with consummate ease which creates the possibility that the ensuing decline might make a higher bottom above the recent low of 4,770 points.


3. We have completed 18 weeks from the recent high of 5,629 points.


Strategy


The weekly averages continue to be negatively phased despite the sharp rise indicating that one should exit long positions at current levels as well as any further rise. The short term oscillators are also overbought and the rally is now four weeks old (the time frame we were expecting since the low was 5-6 weeks). The volumes have also not been very encouraging in the rise as the Nifty has almost hit the 61.8% retracement level of the decline from 5,629-4,770 points. The resistance line (in black) is pegged just above the 5,400 points mark (a remote possibility of hitting that level) in the current rise. From the decline of 6,338 points (November 2010) the tops have been on an average 16-18 weeks apart and we have now completed 18 weeks from the top of 5,629 points. Looking at all the above it would be prudent to book profits at current levels as well as in any further rise. Those enterprising (high risk players) can even build shorts with an appropriate stop loss (depending on the selling price) as there is a possibility that we might begin a decline which goes sub 5k if not more, in the weeks ahead.


(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com)
 

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