Nifty, Sensex on an uptrend: Friday closing report

The first sign of weakness in Nifty will be below 6,270. Until then, bulls have the ball

After a volatile session on the bourses both the Sensex and the Nifty closed Friday at their all-time highs. Both Sensex and Nifty opened marginally lower at 21,159 and 6,290, respectively. Soon they hit their respective high at 21,294 and 6,333.  During the noon session both the indices hit their day’s low at 21,141 and 6,287. However, they managed to recover immediately from that level and come back into the positive. After a session, where the trading happened mostly in the green the Sensex closed at 21,197 (up 32 points or 0.15%) and Nifty closed at 6,307 (up 8 points or 0.13%). The National Stock Exchange (NSE) recorded a massive volume of 88.99 crore shares, among the highest ever. However, since this was not accompanied by a significant advance, the bulls should be cautious if today’s high is not crossed quickly.


Out of 1,225 stocks on the NSE, 771 were up, 401 were down and 53 were unchanged.


Fiscal deficit was Rs4.12 lakh crore during April-September 2013, or 76% of the full-year target, government data showed on Thursday, 31 October 2013. In the annual budget presented in February, Finance Minister P Chidambaram had committed to narrow the fiscal deficit to 4.8% of gross domestic product (GDP) this fiscal year from 4.9% a year ago.


Indian factories cut production in October with overall manufacturing activity contracting for the third straight month as order books shrank at a quicker pace, a survey showed on 1 November 2013. The HSBC Manufacturing PMI compiled by Markit was unchanged at 49.6 in October, remaining below the watershed 50 mark that separates growth from contraction. The new orders sub-index fell to 48.9 last month from 49.6 in September, its fifth month below 50. The PMI survey showed input costs grew last month at their quickest pace since June 2012. Output costs also rose at the fastest rate since February.


The stock exchanges will hold a special live trading session on Sunday, 3 November, 2013, as Muhurat trading on Diwali. The trading will start at 18:15 IST and will end at 19:30 IST on that day. The stock market remains closed on Monday, 4 November 2013, on account of Diwali-Balipratipada.


Asian indices had a mix performance. Seoul Composite was the top gainer (0.46%) while Jakarta Composite was the top loser (1.73%).


A Chinese manufacturing gauge The Purchasing Managers' Index rose more than estimated to an 18-month high of 51.4 in October as output strengthened, adding to evidence the nation's economic recovery is sustaining momentum.


US indices closed in the negative for the second day yesterday. Fewer Americans filed applications for unemployment benefits last week as a backlog in California's reporting cleared. Jobless claims decreased by 10,000 to 340,000 in the week ended Oct. 26 from 350,000 the prior period, the Labor Department reported Thursday in Washington. European indices were trading mostly in the red while US Futures were trading in the green.


Stagflation coming?

Inflationary pressures are rising sharply, suggesting a stagflation-type scenario in the economy with domestic consumption and investment likely to remain weak in FY14, says Nomura in its research note on manufacturing PMI data for October 2013.

The manufacturing PMI averaged 49.4 in Q3 2013 and October data suggests that Q4 is also starting on a weaker note. Exports and agriculture growth will be a tailwind, but domestic consumption and investment are likely to remain weak due to pro-cyclical fiscal and monetary policies. In this tug of war, growth may not fall much, but neither will it rise substantially, indicating a very prolonged period of sub-par growth. However, even with a negative output gap, inflationary pressures are rising sharply, suggesting a stagflation-type scenario in the economy. This is according to a research note by Nomura on manufacturing PMI data for October 2013.


India’s manufacturing PMI was unchanged at 49.6 in October 2013. The price indices related to input cost pressure on the PMI are shown in the chart below:


The input price index rose to a 16-month high of 64.5 from 63.5 in September, continuing the steep uptrend of the last four to five months. The rupee has appreciated over the last two months, yet the continued rise in input costs suggests broader cost pressures. The output price index rose to 55.3 from 51.1, suggesting that firms have started to pass-on higher input costs to consumers to protect margins. The ratio of output/input price – a proxy for margins – improved this month, points out Nomura.


According to the research note, despite reduced new orders, backlogs of work rose to 52.6 from 50.7 in September, as firms complained of power cuts. Domestic demand remains weak, but cyclone Phailin also led to lower orders this month. Even as new orders fell, inventories rose this month. As a result, the new orders-to-inventory ratio fell to 0.94 in October – the lowest since January 2009 – from 0.98 in September, suggesting scope for manufacturing output to be cut further as firms may need to destock inventory if demand does not recover.


The table of Manufacturing PMIs at a glance is given below:



Two-wheeler industry's domestic volumes to remain flat in FY14

According to ICRA, motorcycles segment, which accounts for over 70% of two-wheeler industry volumes in India, remains the primary weak spot

Ratings agency ICRA Ltd, an associate of Moody's Investor Service said, it expect domestic volumes for two-wheelers to remain flat during FY2013-14 due to weakness in consumer sentiments.


"Like in the past, the onset of the festive season (this year a little earlier as compared to the last year) has brought about a sequential growth in volumes in September quarter, but the quantum of quarter-on-quarter (QoQ) growth at 1% remains much lower than the historical average of 6-7%, indicative of the weakness in consumer sentiment," the ratings agency said in a release.


According to ICRA, domestic two-wheeler industry had recorded sales volumes of 13.8 million units in 2012-13, a growth of 2.9% over the previous year. The motorcycles segment, which accounts for over 70% of industry volumes, remains the primary weak spot. In contrast, the scooters segment, which accounts for about 24% of industry volumes, has motored along at a brisk pace expanding by 16.6% during first half of 2013-14, it added.


Over the medium term however, ICRA said it expects the two-wheeler industry to report a volume CAGR of 8-9% to reach a size of 21-22 million units, including domestic and exports by 2016-17 even as its longer-term growth forecast remains at 9-11%. 


"We believe the various structural positives associated with the domestic two-wheeler industry including favourable demographic profile, under developed public transport system, growing urbanization and strong replacement demand remain intact; as also the large opportunity of growth in overseas markets, mainly Africa and Latin America," the ratings agency added.


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