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Sentiment Takes A Beating

Monday, June 16, 2014
By Dominic Rebello

Dominic Rebello is a senior journalist and analyst

The wave of optimism in India is evident by the BSE and Nifty, which started rallying with the exit poll results and continued after the people of the country gave a thumping victory to a Modi led NDA government, continued till last week when the two major indices registered new highs, with the Nifty touching the psychologically important 7000 points level.

But now with the rising of tensions in Iraq, the markets slumped last Friday and registered its single biggest day fall in the last four and a half months. According to experts, the higher crude oil prices, if sustained, would increase the subsidy bill and trade deficit. Apart from this the 'El Nino' risk is expected to keep inflation elevated and RBI on a "long hold" as the first rate cut by the central bank will only be likely in early 2015, rather than this December, according to a latest BoFAML report. "If rains are normal, CPI inflation should drop to 7-7.5 % by March 2015. If the El Nino impacts the kharif harvest, rising food prices could push up CPI inflation to 8 -10 %, essentially irrespective of monetary policy action," the report said.

“The Indian markets witnessed a sharp fall in light of the rise in tensions in Iraq. Brent Crude has hit a nine-month high and the Oil and Gas companies were weak on that account. The currency depreciated and was weak. Realty continued to be the biggest loser reversing most of the gains it made in the recent run-up,” says Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities. Tension in Iraq fuelled the sharp fall with Brent Crude surging to a nine-month high. The WPI numbers will be released on Monday and it will be a data point to watch out for, he added.

“Crude price concerns caused by the geo-political concerns in Iraq marred sentiments in the markets. Several stocks, which have had a heady run over the past few weeks, fell sharply on profit-booking. The markets have run up sharply over the past few months. Going ahead, we see the monsoon progress and the budget to be the two important triggers for the markets. We feel that, a progressive budget as well as other reform initiatives will likely lead to continued out performance of Indian indices v/s emerging market peers.  However, if there is a continued rise in crude price, it will be a negative from the CAD, rupee and inflation perspective,” says Dipen Shah, Head- Private Client Group Research, Kotak Securities.

"The benchmark indices last Friday lost nearly one & half percent. Initially, the bias was on the positive side in response to better than expected IIP and CPI inflation numbers. But, it could last for long due to weak global cues, following tension in Iraq and disappointing US economic data. Considering last Friday’s close, we may see further decline in Index on Monday and 7450 spot is the next crucial support in Nifty. Among the sectoral indices, IT and Pharma counters looks best for buying at current levels whereas profit taking will continue in banking, auto and Midcap segment so plan your trades accordingly," says Jayant Manglik, President-retail distribution, Religare Securities.

However, the positive news is the growth in the Index of Industrial Production (IIP), which rose by 3.4% in April 2014, recording its highest level in the last 13 months. Meanwhile, the retail inflation measured by Consumer Price Index (CPI) eased to 8.28% in May 2014 (from 8.59% in the month prior).

 Then there is more good news that is trickling out. According to some media reports the government is likely to raise the I-T exemption to Rs 3 lakh and some reports state the limit could be hiked even further to Rs 5 lakh from Rs 2 lakh. The sources reveal that the government is also considering raising the tax exemption limit on home loans and health insurance premium.

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