Nifty has to rise above today’s high for the uptrend to restart
We mentioned yesterday that the Nifty and Sensex may try to hit new highs, but a short decline is overdue. This is exactly what happened today. The indices hit a new life time high but couldn’t sustain the levels and started moving lower. After hitting a three day low (including today) the indices recovered a bit towards the end of the day. We expect the market to dip again either on Monday or Tuesday.
S&P BSE Sensex opened at 26,257, while CNX Nifty opened at 7,828. The indices hit a high at 26,300 and 7,841. Sensex hit a low at 26,007 and closed at 26,127 (down 145 points or 0.55%), while Nifty hit a low of 7,749 and closed at 7,790 (down 40 points or 0.51%). The NSE recorded a volume of 95.30 crore shares. India VIX fell 3.39% to close at 14.2200.
The Minister of State for Finance, Nirmala Sitharaman today said that the government does not have any current proposal to cut the record 10% import duty on gold, and also that the government has not decided its stance on its policy to allow foreign direct investment in supermarkets.
Today Finance Minister Arun Jaitley reportedly said that he is preparing to take a final decision on the controversial General Anti-Avoidance Rules (GAAR). GAAR is a tool to curb tax avoidance.
The government is also planning to sell a 5% stake in SAIL, as also a public listing of the steel company Rashtriya Ispat Nigam, to sell a 10% stake this fiscal year, Finance Minister Arun Jaitley said on Friday. Meanwhile, the monsoon was reportedly 24% above average in the week ended July 23.
Glenmark Pharma (6.83%) was among the top two gainers in the ‘A’ group on the BSE. The company has posted a net profit of Rs103.93 crore for the quarter ended June 2014 as compared to Rs117.80 crore for the quarter ended June 2013, while the sales increased from Rs509.43 crore to Rs616.46 crore for the relevant period.
Biocon (-7.07%) was among the top two losers in the ‘A’ group on the BSE, after posting a weak June 2014 quarter result. The company has posted a net profit of Rs74.63 crore for the quarter ended June 2014 as compared to Rs87.73 crore for the quarter ended June 2013.
Sun Pharma (4.44%) hit its 52-week high today on the BSE and was the top gainer in the Sensex 30 pack.
Global proxy advisory firm Institutional Shareholder Services has voiced concerns about Tata Motors' plan to raise funds through public deposits and advised shareholders to reject the proposal. It was also sceptical about the proposal to raise salaries of its executives. Tata Motors (-5.70%) was the top loser in the Sensex 30 stock.
US indices closed flat on Thursday. The number of Americans filing applications for unemployment benefits dropped last week to the lowest level in more than eight years. Jobless claims fell by 19,000 to 284,000 in the week ended July 19, the lowest since February 2006 and lower than the forecast, a Labor Department report showed in Washington.
Fewer than forecasted new homes were sold in June in the US, and data for the prior month was revised down.
The International Monetary Fund lowered its outlook for growth yesterday. The world economy will expand 3.4% in 2014, the IMF said, less than its 3.6% prediction in April and stronger than last year's 3.2%. Next year, growth will be 4% compared with an April forecast for 3.9%, the fund said.
Except for Jakarta Composite (-0.19%), Straits Times (-0.11%) and Taiwan Weighted (-0.93%) all the other Asian indices closed in the green. Nikkei 225 (1.13%) was the top gainer. European indices were trading marginally lower. US Futures too were trading in the red.
If the Nifty is not able to close above 7,840 by Tuesday, the indices will head towards 7,600
The S&P BSE 30-share Sensex closed the week that ended on 25th July at 26,127 (up 485 points or 1.89%), while the NSE’s 50-share CNX Nifty closed at 7,790 (up 127 points or 1.65%) for the week. We had mentioned last week that the indices may rally for a day or two before a pause or a decline. Except for Friday, this week the market witnessed a rising trend, with the benchmark closing at a new high in two consecutive sessions. However, the market is highly overbought at present and we continue to maintain that it will give up some gains soon.
On Monday, the market closed in the positive for the fifth consecutive session, recording marginal gains. The upmove may have got support from news of an improved monsoon. Nifty closed at 7,684 (up 20 points or 0.26%).
On Tuesday, Nifty continued its uptrend. Nifty closed at 7,768 (up 84 points or 1.09%). Finance Minister Arun Jaitley had said that the government is inclined to continue restrictions on gold imports, along with other steps taken by the previous UPA regime for controlling the widening CAD (current account deficit). The government is planning to offload its stake in certain profit-making infrastructure units of the Indian Railways. Since these companies may not be listed, it is likely that an initial public offer (IPO) will be accompanied by an offer for sale by the government.
Positive data from the US added more momentum to the current upmove back home. Nifty closed at its new high at 7,796 (up 28 points or 0.36%) on Wednesday. The Reserve Bank of India said that it expected that about 4-6 banks may be designated as domestic systemically important banks (D-SIBs) and that the RBI will disclose the names of the banks classified as D-SIBs in the month of August every year starting from 2015.
On Thursday, after a weak move until 2.00 pm, the indices witnessed a sudden upsurge and closed again at a new high. Nifty closed at 7,831 (up 35 points or 0.45%). Data from China showed the manufacturing gauge rising to an 18-month high in July, adding to signs that the government will meet its 2014 economic-growth target of about 7.5%.
The Union Cabinet approved the hike in foreign direct investment in the insurance sector to 49% from 26%. The Finance Minister, in the Union Budget 2014-15, had proposed a hike in FDI in insurance sector to 49% from 26%.
The market gave up gains for the first time after eight positive trading sessions. Nifty closed at 7,790 (down 40 points or 0.51%). Finance Minister Arun Jaitley said that he is preparing to take a final decision on the controversial General Anti-Avoidance Rules (GAAR). GAAR is a tool to curb tax avoidance.
The International Monetary Fund lowered its outlook for growth. The world economy will expand 3.4% in 2014, the IMF said, which is less than its 3.6% prediction in April and stronger than last year's 3.2%.
For the week, among the other indices on the NSE, the top two performers were IT and Pharma, both up 4% while the worst two performers were Nifty Midcap 50 and Smallcap both down 3%.
Out of the 27 main sectors tracked by Moneylife, the top five and the bottom five sectors for this week were:
India’s sovereign debt is currently rated BBB- by most rating agencies. A Morgan Stanley research finds that a rating upgrade would be unlikely in the next one year
Fitch Ratings have a BBB- long-term rating on India, their lowest investment-grade level. India’s sovereign debt is currently rated BBB- by all rating agencies, only Standard & Poor's (S&P) has a negative outlook on India. Morgan Stanley, in its recent report titled ‘The Next India-Fixed Income: From Volatility to Moderation’, does not foresee a rating upgrade in the next 12 months. The report mentions that “While India scores well on such variables as GDP growth and FX reserves/GDP on Morgan Stanley forecasts, it needs to show considerable improvement in inflation, fiscal balance and current account deficit to potentially be upgraded.”
What would it take to improve India’s rating? According to Morgan Stanley, “reforms that target reducing inflation, cutting the fiscal deficit, and encouraging FDI inflows are essential to boosting productivity and improving growth. Addressing these factors is therefore critical for achieving the government’s aim of sustainable and higher growth. If these key areas are targeted effectively, it would not only boost productivity, but also improve the credit rating for the sovereign debt.”
Commenting positively on the regime change, the report mentions that, “The stable political environment that has emerged following the 2014 elections is conducive to rapid implementation of policy reforms. The new administration is making efforts towards containing the fiscal deficit, efficient redistribution of resources, and encouraging private-sector investment – measures we believe will set the stage for India’s real GDP to reach US$5 trillion by FY 2025, averaging a growth rate of 6.75% over the next 10 years”
In an earlier report, Morgan Stanley mentioned that a steady pace of implementation of policy reforms can lay the foundation for India's real GDP to grow at an average of 6.75%, and the economy would pass the $5 trillion mark over the next 10 years. Read more about that report here- The Next India: Opportunities and challenges
India’ growth made a shift downward post the financial crisis. The report mentions that this was “followed by some poor policy choices at home. However, over the past 12 months, we are beginning to see some signs of economic recovery.”
“Following the second stage of India’s economic liberalisation and the FDI reforms initiated in September 2012, we believe foreign investment will be a major contributor to the upsurge in private investment over the next few years,” the report mentions further.
The Reserve Bank of India recently readjusted the debt investment limits for various kinds of foreign investors. It increased the FII debt limit to $25 billion and reduced the long-term foreign investors’ limit to $5 billion. Bond traders expect to see increased trading in government bonds.
Citing the role of the RBI, the Morgan Stanley report says that, “A shift in the RBI’s monetary policy framework toward inflation targeting would play a significant role in lowering nominal interest rates over time. This monetary policy commitment will have to be accompanied by fiscal prudence and policy reforms to bring inflation structurally lower. This, in turn, will allow for lower funding costs in the economy, although we expect real rates to turn positive with increasing growth over the next few years. Indian government bonds could also benefit from the potential relaxation of foreign investor limits in the bond market.”