Sensex, Nifty may rally higher on short-covering: Weekly Market Report

The rally will have to overcome various levels of resistance to head higher

The Indian market closed higher this week, snapping its three week losing streak. The lower-than-expected GDP numbers led to the strengthening of the rupee. Economic reforms announced by the Centre on Thursday also supported the gains. Investors will now focus on the release of the macro-economic indicators and global cues for market direction.


The Sensex finished the week at 19,396, a gain of 622 points (3.31%) and the Nifty settled 175 points (3.08%) higher at 5,842.


A plunge in the Chinese market and a pullout by foreign investors from Indian stocks led the market lower on Monday. The benchmarks settled marginally higher on Tuesday on selling pressure from power, consumer durables and healthcare stocks. The range-bound market gave up all its gains in the post-noon session on Wednesday after the rupee touched a new all-time low of 60.35 against the dollar in intraday trade.


The market settled off the highs of the day on lower-than-expected current account deficit figures. The economic reforms announced on Thursday and the strengthening rupee helped the market settle over 2.5% higher on Friday.


BSE Oil & Gas (up 7%) and BSE IT (up 4%) were the top sectoral gainers while BSE Consumer Durables (down 6%) was the lone sectoral loser.


The top gainers on the Sensex were Reliance Industries (up 9%), GAIL India (up 8%), ONGC, TCS and Hindalco Industries (up 7% each). The main losers were Tata Motors, State Bank of India (down 2% each), Maruti Suzuki and Hindustan Unilever (down 1% each).


The top performers on the Nifty were RIL (up 9%), GAIL India, ONGC (up 8% each), HDFC and TCS (up 7% each). Ranbaxy Laboratories (down 11%), Jaiprakash Associates (down 7%), IDFC (6%), Punjab National Bank and Tata Motors (down 2% each) were the key losers on the benchmark during the week.


The rupee, which on Wednesday plunged to an all-time low of 60.35 against the dollar in mid-session trade, rebounded and settled at 59.39 on Friday. This is rupee’s biggest single-day gain since 21 September 2012, when it had gained 93 paise, or 1.71%.


The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved near doubling of natural gas prices to $8.4 per million metric British thermal unit (mmBtu) from 1st April next year, a move which will result in rise in power tariff, urea cost and CNG prices.


The CCEA also approved setting up of Coal Regulatory Authority which will be empowered to specify methodology for determining coal prices.


Will Ford Ecosport be a game changer in the small UV segment?

While the overall passenger vehicle market remained stagnant, UVs and SUVs priced below Rs15 lakh recorded 54% growth in FY13. With very attractive pricing and features, Ford's Ecosport will challenge M&M's Quanto, Maruti Suzuki's Ertiga and Renault's Duster—at least initially

With a starting price of Rs5.59 lakh, Ford India's entry into the sports utility vehicle (SUV) space with its Ecosport will certainly pose a challenge to Mahindra and Mahindra’s (M&M) Quanto, Maruti Suzuki India’s (Maruti Suzuki) Ertiga and Renault’s Duster, the leaders in compact SUVs at present. In addition, Ecosport may cannibalize sales of some higher-end hatchbacks like Hyundai’s i-20, Maruti Suzuki's Dzire and Honda Amaze.

The only thing that can play spoilsport for Ecosport is limited dealership of Ford India and overall market sluggishness. After witnessing high volume growth in FY13, the growth of UVs has come off to around 4% during April and May 2013 due to a slowdown in overall passenger vehicles. During FY13, passenger car sales declined 6% while UV sales grew by over 54% to 5.29 lakh units on a shift in consumer preferences and new launches at attractive pricing range.


“We expect Ford Ecosport will be able to attract consumers” attention due to attractive pricing along with various features, but the initial momentum will not sustain due to continued slowdown in the passenger vehicle industry. Further Ford’s dealer outlets (230 as of March 2013) will constrain its sales,” said BRICS Securities in a research note.


According to Religare Capital Markets, with the launch of Ecosport, competition is likely to intensify. “We believe Ford’s new model could offer tough competition to Renault and also to incumbents. UV sales have already slowed post the excise duty hike announced in Budget 2013, and amid a moderating diesel-petrol price gap, Ford’s Ecosport could fuel further competition and exert pressure on volumes of existing players,” it said in a report.


Attractive pricing to boost initial sales

The EcoSport comes in three engine options: 1.5L diesel engine priced between Rs6.69 lakh and Rs8.99 lakh, 1L EcoBoost turbocharged petrol engine between Rs5.59 lakh and Rs8.45 lakh and 1.5L petrol engine between Rs7.90 lakh and Rs8.29 lakh. Bookings for the vehicle have opened the past week.


The starting price of Renault Duster is Rs7.99 lakh with its diesel version starting at Rs8.73 lakh. Both Ecosport and Duster have similar 1.5L Turbo diesel engine, except that Renault offers a 6-speed gearbox while Ford has provided a 5-speed one.


According to BRICS, initial bookings for Ecosport can go up to 15,000 to 20,000 units within three-four months. “However, this will normalise to about 3,000 units per month due to the slowdown in the overall industry,” the brokerage said.


Competition set to increase

Ford’s first offering in compact SUV space in India is most likely to pose competition to M&M’s Quanto, Maruti Suzuki's Ertiga and Renault's Duster. Further Ford has positioned Ecosport as an urban vehicle, which may eliminate direct competition with M&M. The Mahindra group company has two distinctive advantages, one the rural market contributes to over 50% of its sales and it offers SUVs with higher engine displacement at the same price range.


This also means, the main rivals for Ecosport would be Ertiga and Duster. Given Maruti Suzuki’s unmatched distributor network as well as service centres across the country, it would be difficult for Ford to make inroads. This leaves only Duster as the main competitor for Ecosport and by keeping lower price and providing more features, Ford surely has ruffled some feathers.

Since its launch in July 2012, Renault is selling about 5,000 units of Duster, thus steadily eating the urban market share of M&M. Ertiga also has garnered average monthly sales of 6,000 units. M&M’s two flagship SUVs, XUV500 and Quanto have monthly average sales of 2,200 units and 1,500 units, respectively.


According to reports, in order to counter the onslaught of urban compact UVs, the Mahindra group company, also the largest UV producer in the country, is planning a compact version of its XUV500. By keeping the length of this compact UV at less than four meters, M&M should be able to keep its pricing attractive. With the attack of more and more automakers, especially on price front, which is supposed to be its stronghold, M&M sure knows how to play its game.


Rupee rebounds to 59 level; up 80 paise against the dollar

The rupee it rebounded to a high of 59.21 before settling at 59.39, a rise of 80 paise, or 1.33%. This is rupee’s biggest single-day gain since 21 September 2012, when it had gained 93 paise, or 1.71%

In line with the surge in stocks, the rupee today rose by a staggering 80 paise, its biggest single-day gain in last nine months, to close above the 60-mark at 59.39 amid signs of strong fund inflows on hopes that US Fed will not begin tapering monetary stimulus soon.


Forex dealers said sustained dollar selling by exporters tracking weakness in the US currency overseas also boosted the rupee.


The rupee commenced at 59.95 a dollar as against previous close of 60.19 at the Interbank Foreign Exchange (Forex) market and immediately touched a low of 60.02.


Later, it rebounded sharply and rallied to a high of 59.21 before settling at 59.39, revealing a rise of 80 paise, or 1.33%. This is rupee’s biggest single-day gain since 21 September 2012, when it had gained 93 paise, or 1.71%.


“Pulling back of the rupee today was mainly driven by sentiment after the announcement of gas price hike and formation of a coal regulator among others by the government.


“Also, the market’s expectation of improved scenario on CAD front on the back of falling gold prices and lesser buying of the yellow metal supported the currency,” said Hemal Doshi, currency strategist at Geojit Comtrade.


He also said rupee may pull back more from the current level if the RBI and government come up with more measures.


Foreign institutional investors pumped in a massive Rs1,124.31 crore into domestic equities today, according to BSE provisional data.


The BSE benchmark Sensex today zoomed by 520 points, or 2.75%, to end at 19,395.81 on a rally at the refinery counters.


The dollar index was down by 0.05% against other major rivals as three US Federal Reserve officials yesterday indicated investors had overreacted to recent remarks by Fed Chairman Ben Bernanke signalling tapering of bond purchases.


Meanwhile, premium for forward dollar remained weak on sustained receipts by exporters.


The benchmark six-month forward dollar premium payable in November declined to 143-145 paise from Thursday's close of 147-149 paise. Far-forward contracts maturing in May also dropped to 312-314 paise from 318-320 paise.


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