Nifty, Sensex may move sideways with a downward bias - Weekly Market Report

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 credit rating unlikely to be upgraded soon: Morgan Stanley

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.”


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