Sensex, Nifty in a rally mode: Friday closing report

A close below 6,215 on the Nifty may reverse the rising trend

In Wednesday closing report, we had mentioned that a correction may set in, if Nifty closes below 6,200. Today, the benchmark opened in the positive zone and continued to stay there for the entire session. BJP's prime ministerial candidate for this year's Narendra Modi's reformist agenda and promised policy implementation in a speech on Thursday and remarks from Federal Reserve chair Janet Yellen before the Senate Banking Committee on Thursday reiterated her confidence in the US economy boosted market sentiment.


The Sensex opened at 20,995 while the Nifty opened at 6,228. Both the indices hit their respective intra day low almost at the opening level and started moving higher. At the close of the session, the benchmarks hit their days high at 21,141 and 6,283. The Sensex closed at 21,120 (up 133 points or 0.63%), while the Nifty closed at 6,277 (up 38 points or 0.61%). The NSE recorded a huge volume of 63.75 crore shares.


India's fiscal deficit in the first ten months of the FY 2013-14 crossed the target for the whole year. The fiscal deficit touched Rs5.33 trillion during April-January, or 101.6% of the full year target, compared with 89.4% at the same point a year ago, government data showed on Friday.


Arvind Kejriwal's Aam Aadmi Party intensified its attack on Reliance Industries (RIL) chairman and managing director Mukesh Ambani, accusing him of being involved in a Rs6,530-crore money-laundering operation. RIL on Thursday, 27 February 2014, said that allegations that foreign direct investments in certain Indian companies by Biometrix, a Singapore-based company, are "laundered monies" invested in India are completely false. RIL, part of Sensex 30 stocks, was among the top five loser. RIL fell 1.39% to close at Rs799.25. US indices closed in the green on Thursday.


Federal Reserve Chair Janet Yellen repeated that the central bank is likely to maintain its strategy of gradually trimming asset purchases. Yellen, in the second day of her semi-annual testimony on the economy and monetary policy, also repeated the Fed's pledge to keep the benchmark interest low at least as long as unemployment stays above 6.5% and the outlook for inflation doesn't exceed 2.5%.


The number of people applying for US unemployment benefits rose 14,000 last week to a seasonally adjusted 348,000. But the four-week average was unchanged at 338,250, the Labor Department said Thursday.


Orders for US durable goods fell 1% in January as demand tapered off for most big-ticket items except military hardware, the government said Thursday.


Except for Nikkei 225 (down 0.55%) all the other Asian indices closed in the positive. Jakarta Composite (up 1.12%) was the top gainer.


A meeting of China's lawmakers to set economic policy and growth targets begins next week in Beijing.


Japanese retail sales rose 4.4% in January from a year earlier, the government said Friday, a sign that consumers are increasing purchases ahead of a sales tax increase in April. Japanese consumer prices rose a bit more sharply than expected in January.


European indices were trading in the red while US Futures were trading marginally lower.


Rural India continues to be the bright spot in the economy, says Credit Suisse

Spending patterns in rural area are much higher than urban India, finds Credit Suisse consumer survey

Spending patterns continue to show a big divergence between rural and urban India, with rural yet again seeing a much bigger improvement than urban India in almost all categories, observes Credit Suisse in a research note based on a consumer survey. More people in rural India saw their incomes increase last year and even more expect this trend to continue next year. Rural consumers are spending more, and penetration gaps between urban and rural India for discretionary items such as autos, branded goods and even monthly outgo on mobile connection have come down.


Despite the higher growth in spending in rural India, the fall in savings rate is more drastic in urban India, showing the effect of lower income increase and higher inflation on urban consumers, points out the research note. The comparison of urban and rural respondents is shown in the graphs below:




According to Credit Suisse, the declining trend of consumer optimism observed in the last two years shows some signs of improvement. More people believe this is a good time for making big-ticket purchases, and also expect inflation to decelerate.


According to the research note, faith in the government too has increased as more people believe it is effective in solving problems, possibly indicating better local governance by state governments. This is shown in the graph below:


Mean household income has also increased as shown in the graph below:

However, there are contrary indicators as well that make this minor recovery in optimism fragile; a larger proportion of the respondents expect personal finances to deteriorate and incomes to decline. Savings rate too has come down with increase in expenditure on items such as housing and education, partly contributed by high inflation. Many respondents believe that income will decline in the future as shown in the graph below:


On a positive note, Credit Suisse points out that there is also a reversal of the down-trading trend in discretionary items that was observed in last year's survey—a sign that declining growth in discretionary items may be bottoming out. However, Credit Suisse believes that it is still early to say whether the cycle has turned and things will pick up from here on.


Of the nine countries surveyed, ownership of cars, smartphones and electronic items is the lowest in India, according to the research note. Indians are among the lowest consumers of items such as spirits, meat and cigarettes. This, combined with the greater participation of rural India and lower-income categories, bodes well for India’s consumption story.


The top picks, notes Credit Suisse based on the survey, in the Indian consumption universe are ITC, Maruti, Page Industries, HDFC Bank, Kajaria and Emami. The following table gives Credit Suisse observations on the companies of interest:





Inflation of Primary Articles has resurfaced in 2014

While core inflation has moderated considerably, a resurfacing of inflation in primary articles has been observed in FY14, points out CARE Ratings

A major concern affecting the Indian economy has been inflation. Inflation for most part of FY12 and FY13 maintained an accelerating trend, with headline WPI (wholesale price index) inflation averaging 7.4% in FY13. While core inflation has moderated considerably, a resurfacing of inflation in primary articles has been observed in FY14, observes CARE Ratings in a research note on inflation. The report is based on the data for January 2014 (latest available period) for both WPI and CPI (consumer price index).


The problem with primary articles (particularly, food articles) inflation (35.7% share in inflation) is shown in the table below:

The break-up of primary articles and its contribution to inflation is given below:


Fuel and power, which is also big in its contribution to inflation is shown in detail below:

RBI (Reserve Bank of India) under its new leadership of Dr Raghuram Rajan has shown a clear preference to CPI inflation as an indicator to the problem. CARE Ratings has given the break-up for CPI inflation in the following table:


As shown in the table, more than half of CPI inflation comes from food, beverages and tobacco with a share of 56.4% in overall retail inflation.


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