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India Equity Research Reports, IPO and Stock News
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February view: Brace for an extended winter
Euphoria gives way to despair
Q3FY11 results: Moderated growth trajectory
Valuations cheap…Oh really?
Sector rotation at play; what worked when?
Metals: Better times ahead
Banks: Not yet out of the woods
Euphoria gives way to despair
Very few would have anticipated a gory start to the new year with benchmark
indices tumbling more than 10%, ending the euphoria that bulls had induced in
2010. No sector provided safe haven to investors, with all sectors falling prey to
market selloff. As mentioned in the previous month’s hEDGE-Jan-11, interest rate
sensitives were the most impacted sectors. Be it banking, auto or real estate, all
went under the knife. Inflation continues to be a thorn in the recovery process with
RBI increasing the base line projection of WPI inflation for March 2011 to 7.0%
from 5.5%. Further, both repo and reverse repo rates were hiked 25bps each to
6.50% and 5.50%, respectively, thereby maintaining the LAF corridor at 100bps.
CRR was left unchanged, in line with market expectations. On the inflation front,
the central bank accepted its limited role in directly controlling inflation. Rising
commodity prices globally have added to Mint Street’s woes.
Cost pressures have come to the fore in the Q3FY11 corporate results season so far.
Most companies have started feeling the pinch of rising costs on operating margins.
And if this was not enough, the recent political turmoil in Arab countries (Tunisia
and Egypt) has sent shock waves all around the globe. Civilian movements in these
countries against incumbent authorities are threatening the supply of crude. And,
everyone’s well aware of the kind of impact high crude prices can have on an
economy like India. Inflation, impending rate hike environment, and global political
turmoil are surely not the stuff that the doctor (investors) had ordered for the new
year. No wonder markets have corrected sharply in a span of a month. After a
record FII inflow of ~USD 29 bn in CY10, the beginning of 2011 has seen outflows
of ~USD 1.20 bn.
A startling fact worth noting is that even after record FII inflows last year, markets
returned ~17%, which by its standard is mediocre. So what happens if this
invigorating overseas fund flow reduces? This should be an interesting
phenomenon to watch in the coming months. For February, we expect the
benchmark Nifty to trade in the 5200-5650 range. Investors should watch out for
the sharp pull back rallies which have the potency to catch everyone on the wrong
foot. Crucial resistances and supports are placed at 5550/5600 and 5350/5200
levels, respectively.
Q3FY11 results: Moderated growth trajectory
Q3FY11 results have been mixed so far. Though improved pricing has aided strong top line growth, some moderation
has started setting in the past few quarters. Margins have shown reversal in trend, though it looks unsustainable on the
back of inflationary concerns. Companies have effected price hikes and have also reduced promotional spending to
tackle higher raw material costs. Going ahead as well, cost concerns are likely to play a spoilsport. For the group of 35
companies under study (banks and oil marketing companies have been excluded) revenue has increased ~18% Y-o-Y
while it has jumped ~5% Q-o-Q. Operating profit margin stood at ~19% compared to ~20% for the corresponding
quarter last year. Reported profits have increased ~16% Y-o-Y.
Valuations are cheap…Oh really?
The market is trading at ~15x and looking ahead, it is trading close to ~14.6x on consensus earnings which does not
look expensive as it is in the middle of the range of its historic valuations. Factor Analyser, our exclusive quantitative
monthly offering, analyzes stock selections in the Indian market. The market valuations dispersion indicator, which
takes into consideration a combination of P/E and P/B factors, is giving enough signals making the markets look cheap.
Currently, the indicator is trading near -1.2 SD levels below mean, trading close to historical lows.
Valuation dispersions are expressed in z-scores terms (i.e., number of standard deviation away from the 1 year rolling mean). The valuation dispersion indicator has shown tendency to revert from+/- 1.5 S.D levels. High Z-score indicates high value stocks outperforming low value stocks and vice versa
Implied volatility close to higher end of the band
Implied volatility, a measure of fear in the market being a forward looking indicator, gives enough feedstock to believe that the downside is limited from here.
However, when fear is running rampant on the street, bad things happen and can happen in a hurry. Nifty IV is currently trading at +1.42 SD, away from mean levels (historically, a good level for mean
reversion). With expectations of a cool-off in volatility, a short-term pull back can be expected. A correction in IV is, in our view, a high probability event in the current scenario. With the oversold state of the market, short-term pullback is likely.
Institutional investor participation in secondary market
After remaining net buyers for the entire calendar year, FII activity in the secondary market has been biased towards
selling. The FII share in secondary market volumes has been ~18%, which is at the higher end in the past two years.
Over the years, domestic institutions have been doing a balancing act and the share in the market volumes has been
trending upwards. Against this, FII volumes have been in sync with market sentiments.
Sector rotation at play
Though past returns are no guarantee of future performance, history provides conviction to predict the probable future.
Sector rotation is a continuous phenomenon, both between and within sectors. There are many forces at play, micro &
macro. A well balanced portfolio will have exposure to all sectors with the right weights and selections. We have
analyzed the sector wise performance for every month starting from CY06 till CY10. To our comfort, the past five years
includes both bear and bull market leaving no scope for bias. Some interesting findings are mentioned below.
Broad index: BSE 200
Comparing the benchmark performance of BSE 200, the index has always delivered positive returns in April, July,
and December.
April has been the best performing month in terms of average returns across all sectors.
Undoubtedly, January has been the worst performer in the history of past five years with average returns of -4.7%.
Consistently in CY08, CY09, and CY10, the BSE 200 has registered cuts in the month of January with loss of -16%, -
4.3%, and -5.3%, respectively. Even in CY05 and CY06 returns for January were muted with +5% and +2%,
respectively. February has always witnessed the spillover effect of January. Is this the budget effect?
April has been the best performing month with a hit ratio of 100% and an average gain of 8.7% in the past five
years
Sector Performances
BSFI
With budget in March, February is the worst month for BFSI with an average return of -6% in the past five years
and a hit ratio of just 20% (positive return in 1 out of 5 cases).
On the other hand, April and July have been the best performing months with averaged return of 10% and 6.4%
with a hit ratio of 80% and 100%, respectively, in the past five years. The beginning of financial year (April) and
onset of monsoon (July) do justify investor interest in the sector.
Auto
The monsoon effect: July, August, and September have been the best months for the auto sector with a hit ratio
of 80% and average returns of around 5.5%. Pre-empting a good monsoon and its ripple effect on the sector, hot
money chases the sector. December is also a good month (with the year–end discounts boosting sales).
Metals and Oil & Gas
Heavily dependent on global commodity prices, both sectors have shown mixed returns.
Metals has delivered worst returns in June (-5%) with the best in April (13.8%). December for metals is worth
highlighting with an average return of 10.6% and a hit ratio of 100% (all Decembers in the past five years delivered
positive returns).
Oil & gas has delivered best returns in April (10.9%) followed by March (5.2%) with the hit ratio of 80%. January
and February are painful months with an average return of -3%.
FMCG and Pharma
Known as defensive sectors, they have posted stable returns with minimal volatility.
FMCG has delivered an average return of 17.5% with 9% annualized volatility in the past five years. It stands as
the second best performing sector on risk adjusted basis.
Capital Goods
The best sector on risk adjusted basis with an average return of 26.6% and annual volatility of 12.5% in the past
five years makes it a safe long-term investment. Thrust on infrastructure justifies the steady and consistent
performance of the sector.
Consumer Durables
In spite of the attractive average return of 22.7% in the past five years, sector volatility of 20.7% ranks lowest in
the risk adjusted return score card.
hEDGE
Edelweiss Securities Limited
6
What does history indicate?
BSE 200 is worst performer in the months of January and February and best performer in April, July, and December
on the hit ratio and return matrix.
Sector rotation indicates in the first two months of calendar year, Consumer Durables and BFSI are the worst
performing sectors with just 20% hit ratio (1 / 5 years the sector has positive returns) and average return of -6%.
Metal is the best performer in the month of April with 13.8% average return and 80% hit ratio. BFSI and Consumer
Durables make a come back in the second quarter with average return of more the 6% and a hit ratio of 100%.
Auto (-ve 5%) and Metal (-2%) perform badly in October and November, respectively, with a hit ratio of 40% and
20%.
As markets are in full swing in the month of December, the high beta Metals registers best gains of average 10.6%
with a 100% hit ratio.
These findings are based on historical performance and can be used as a platform for monthly sector rotation and
reallocation of the sector weights
Developed markets racing ahead
With green shoots of recovery sprouting in
the developed world, stock markets have
started factoring in the same. In the last
few months, our domestic benchmark Nifty
has been a laggard compared with
prominent global indices. Inflationary
conditions in emerging markets have
compelled investors to flee these high
return avenues in search of safer havens
(risk aversion). A stream of positive data
flows from developed markets is convincing
the investors about the recovery.
Metals: Better times ahead (Our metals analyst Prasad Baji)
With global recovery gaining momentum, metals appear ripe for a good show ahead. Global lead indicators are pointing
to a revival in growth ahead. We expect steel margins to expand in spite of head winds in the form of costs. This
expansion will be aided by increased demand. Pick up in construction in the developed world and reducing inventory
levels in China will be key demand triggers.
In this space, we like Tata Steel and JSW Steel (though for JSW Steel interest costs can be a dampener). Rally in
aluminium will be a story of demand outstripping supply. Factors like uptick in demand from user segments (auto,
packaging, and durable goods) and the China factor (supply struggling to keep pace with demand) should be good for
aluminium prices. We like Hindalco owing to its robust business model.
IT: A safe play on global recovery (Our IT analyst Ganesh Duvvuri)
IT companies reported strong volume growth due to continued demand momentum which was in line with estimates.
With an appreciating rupee and strong employee addition to lower utilization rates, we believe companies could find it
challenging to meet margin expectations.
However, taking into account double digit growth in IT investments by US businesses for 9mCY10 and pick up in
service and manufacturing index of UK in January 2011, we expect Indian IT industry (export market) to surpass
current projections for FY12. Our top pick is TCS which is helped by factors like renewals in deal market that will enable
market share increases and sustained improvement in IT spending (i.e., revival and embracing off shore market).
Banks: Not yet out of the woods (Our banking analyst Nilesh Parikh)
Once the blue eyed boy of investors has now fallen off grace. Margin pressures are getting highlighted in ongoing
Q3FY11 results. The current inflationary and sparse liquidity scenario induces further pressures in the form of rate
hikes and scramble for deposits. Other concerns include asset quality and tepid credit growth in the infra space. Budget
will be a key event to watch as the government will forecast its borrowing programme for the next fiscal (will provide
cues on liquidity).
Looking at current inflation levels, we expect further hike in repo and reverse repo; however, we do not anticipate any
CRR hike. The key thing to watch out in coming months will be RBI’s private licensing policy. For now, looking at the
liquidity situation and margin pressure, we prefer banks with higher CASA deposits. Also, the recent correction has
made the sector much more attractive. In the public sector space we prefer Bank of Baroda. Among private players, we
like ICICI Bank and Axis Bank.
Technical View (Our technical analyst Tejas Shah)
The optimism of 2010 turned into a rude shock in the New Year as the index hit a wall at 6200. Nifty dipped ~1000
points (17.5%) and closed below the crucial 200 day SMA and damaged the market’s bullish technical structure. We
now brace for a retracement of the 2009-10 bull market which means lower levels on the index in coming weeks.
Sectors most hurt in the carnage were Autos, Cap Goods and Oil & Gas. Seasonally, February is a low volatility and flat
returns month, hence, the preferred outlook for the market is of a sideways to downward bias where the index is likely
to trade within the 5650-5200 range.
In the first week of January the index made a long ‘bearish engulfing’ candlestick pattern which was followed by a week
of further decline. Mid-week saw some consolidation and then continuation of the fall. Momentum oscillators once again
rolled bearish and will likely keep the selling active. Nifty has entered within the eight month consolidation range
territory that has an implication of dragging down to the lower end of the range at 5200.
Emerging benchmarks in hibernation; TAIEX the sole gainer
Markets have been jittery following more than a week of anti-government protests in Egypt due to fears that the
crisis could spill over to other countries in the crude-rich but politically volatile Middle East. Further increase in oil
price above the USD 100 per barrel mark could pose a significant risk to the global economy.
Developed markets came back strongly, with the CAC 40 posting resounding gain of ~5.3% during the month. It
was the worst performer in the previous month, not only among developed markets but also globally.
Stream of positive data flow from US markets is convincing the world of a recovery. ISM’s manufacturing PMI came
in at 60.8 against 58.5 last month. Unemployment rate came in at 9% against 9.4% last month.
After a positive December, Indian benchmark indices took a beating in January. Among inflation concerns and FII
selling, markets corrected and have dipped significantly.
Emerging markets were weak with only the TAIEX gaining ~1.9%.
Among EM benchmarks, the SET was the biggest dragger, down ~6.6%.
Among developed markets, the CAC 40 was the highest gainer (returns of ~5.3% in January). Other gainers were
DJIA and S&P 500, gaining ~2.7% and 2.3%, respectively.
FII flows going out of EMs
FIIs were net sellers in India for the first time in the past eight months. Taiwan, among EMs, witnessed maximum
FII inflows of ~USD 3.4 bn.
In India, FIIs were net sellers of ~USD 2.02 bn (cash +
futures). In the cash segment, FIIs sold ~USD 1.38 bn,
while in futures they were net sellers of ~USD 0.63 bn
in January. In FY11, FIIs have been net buyers (cash +
futures) of ~USD 18.35 bn.
Domestic funds net buyers
Following the previous month’s trend, domestic
mutual funds were net buyers in January as well.
They were net buyers of ~USD 131 mn of Indian
equities. In FY11, till date, domestic mutual funds
have sold ~USD 4.57 bn of equities.
Auto and capital goods among top laggards; consumer durables relative saviour
Auto (down ~13.1%) and capital goods (down
~12.3%) were laggards in January.
Consumer durables (down 5.7%) and IT (down
~6.6%) were the relative saviours.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
February view: Brace for an extended winter
Euphoria gives way to despair
Q3FY11 results: Moderated growth trajectory
Valuations cheap…Oh really?
Sector rotation at play; what worked when?
Metals: Better times ahead
Banks: Not yet out of the woods
Euphoria gives way to despair
Very few would have anticipated a gory start to the new year with benchmark
indices tumbling more than 10%, ending the euphoria that bulls had induced in
2010. No sector provided safe haven to investors, with all sectors falling prey to
market selloff. As mentioned in the previous month’s hEDGE-Jan-11, interest rate
sensitives were the most impacted sectors. Be it banking, auto or real estate, all
went under the knife. Inflation continues to be a thorn in the recovery process with
RBI increasing the base line projection of WPI inflation for March 2011 to 7.0%
from 5.5%. Further, both repo and reverse repo rates were hiked 25bps each to
6.50% and 5.50%, respectively, thereby maintaining the LAF corridor at 100bps.
CRR was left unchanged, in line with market expectations. On the inflation front,
the central bank accepted its limited role in directly controlling inflation. Rising
commodity prices globally have added to Mint Street’s woes.
Cost pressures have come to the fore in the Q3FY11 corporate results season so far.
Most companies have started feeling the pinch of rising costs on operating margins.
And if this was not enough, the recent political turmoil in Arab countries (Tunisia
and Egypt) has sent shock waves all around the globe. Civilian movements in these
countries against incumbent authorities are threatening the supply of crude. And,
everyone’s well aware of the kind of impact high crude prices can have on an
economy like India. Inflation, impending rate hike environment, and global political
turmoil are surely not the stuff that the doctor (investors) had ordered for the new
year. No wonder markets have corrected sharply in a span of a month. After a
record FII inflow of ~USD 29 bn in CY10, the beginning of 2011 has seen outflows
of ~USD 1.20 bn.
A startling fact worth noting is that even after record FII inflows last year, markets
returned ~17%, which by its standard is mediocre. So what happens if this
invigorating overseas fund flow reduces? This should be an interesting
phenomenon to watch in the coming months. For February, we expect the
benchmark Nifty to trade in the 5200-5650 range. Investors should watch out for
the sharp pull back rallies which have the potency to catch everyone on the wrong
foot. Crucial resistances and supports are placed at 5550/5600 and 5350/5200
levels, respectively.
Q3FY11 results: Moderated growth trajectory
Q3FY11 results have been mixed so far. Though improved pricing has aided strong top line growth, some moderation
has started setting in the past few quarters. Margins have shown reversal in trend, though it looks unsustainable on the
back of inflationary concerns. Companies have effected price hikes and have also reduced promotional spending to
tackle higher raw material costs. Going ahead as well, cost concerns are likely to play a spoilsport. For the group of 35
companies under study (banks and oil marketing companies have been excluded) revenue has increased ~18% Y-o-Y
while it has jumped ~5% Q-o-Q. Operating profit margin stood at ~19% compared to ~20% for the corresponding
quarter last year. Reported profits have increased ~16% Y-o-Y.
Valuations are cheap…Oh really?
The market is trading at ~15x and looking ahead, it is trading close to ~14.6x on consensus earnings which does not
look expensive as it is in the middle of the range of its historic valuations. Factor Analyser, our exclusive quantitative
monthly offering, analyzes stock selections in the Indian market. The market valuations dispersion indicator, which
takes into consideration a combination of P/E and P/B factors, is giving enough signals making the markets look cheap.
Currently, the indicator is trading near -1.2 SD levels below mean, trading close to historical lows.
Valuation dispersions are expressed in z-scores terms (i.e., number of standard deviation away from the 1 year rolling mean). The valuation dispersion indicator has shown tendency to revert from+/- 1.5 S.D levels. High Z-score indicates high value stocks outperforming low value stocks and vice versa
Implied volatility close to higher end of the band
Implied volatility, a measure of fear in the market being a forward looking indicator, gives enough feedstock to believe that the downside is limited from here.
However, when fear is running rampant on the street, bad things happen and can happen in a hurry. Nifty IV is currently trading at +1.42 SD, away from mean levels (historically, a good level for mean
reversion). With expectations of a cool-off in volatility, a short-term pull back can be expected. A correction in IV is, in our view, a high probability event in the current scenario. With the oversold state of the market, short-term pullback is likely.
Institutional investor participation in secondary market
After remaining net buyers for the entire calendar year, FII activity in the secondary market has been biased towards
selling. The FII share in secondary market volumes has been ~18%, which is at the higher end in the past two years.
Over the years, domestic institutions have been doing a balancing act and the share in the market volumes has been
trending upwards. Against this, FII volumes have been in sync with market sentiments.
Sector rotation at play
Though past returns are no guarantee of future performance, history provides conviction to predict the probable future.
Sector rotation is a continuous phenomenon, both between and within sectors. There are many forces at play, micro &
macro. A well balanced portfolio will have exposure to all sectors with the right weights and selections. We have
analyzed the sector wise performance for every month starting from CY06 till CY10. To our comfort, the past five years
includes both bear and bull market leaving no scope for bias. Some interesting findings are mentioned below.
Broad index: BSE 200
Comparing the benchmark performance of BSE 200, the index has always delivered positive returns in April, July,
and December.
April has been the best performing month in terms of average returns across all sectors.
Undoubtedly, January has been the worst performer in the history of past five years with average returns of -4.7%.
Consistently in CY08, CY09, and CY10, the BSE 200 has registered cuts in the month of January with loss of -16%, -
4.3%, and -5.3%, respectively. Even in CY05 and CY06 returns for January were muted with +5% and +2%,
respectively. February has always witnessed the spillover effect of January. Is this the budget effect?
April has been the best performing month with a hit ratio of 100% and an average gain of 8.7% in the past five
years
Sector Performances
BSFI
With budget in March, February is the worst month for BFSI with an average return of -6% in the past five years
and a hit ratio of just 20% (positive return in 1 out of 5 cases).
On the other hand, April and July have been the best performing months with averaged return of 10% and 6.4%
with a hit ratio of 80% and 100%, respectively, in the past five years. The beginning of financial year (April) and
onset of monsoon (July) do justify investor interest in the sector.
Auto
The monsoon effect: July, August, and September have been the best months for the auto sector with a hit ratio
of 80% and average returns of around 5.5%. Pre-empting a good monsoon and its ripple effect on the sector, hot
money chases the sector. December is also a good month (with the year–end discounts boosting sales).
Metals and Oil & Gas
Heavily dependent on global commodity prices, both sectors have shown mixed returns.
Metals has delivered worst returns in June (-5%) with the best in April (13.8%). December for metals is worth
highlighting with an average return of 10.6% and a hit ratio of 100% (all Decembers in the past five years delivered
positive returns).
Oil & gas has delivered best returns in April (10.9%) followed by March (5.2%) with the hit ratio of 80%. January
and February are painful months with an average return of -3%.
FMCG and Pharma
Known as defensive sectors, they have posted stable returns with minimal volatility.
FMCG has delivered an average return of 17.5% with 9% annualized volatility in the past five years. It stands as
the second best performing sector on risk adjusted basis.
Capital Goods
The best sector on risk adjusted basis with an average return of 26.6% and annual volatility of 12.5% in the past
five years makes it a safe long-term investment. Thrust on infrastructure justifies the steady and consistent
performance of the sector.
Consumer Durables
In spite of the attractive average return of 22.7% in the past five years, sector volatility of 20.7% ranks lowest in
the risk adjusted return score card.
hEDGE
Edelweiss Securities Limited
6
What does history indicate?
BSE 200 is worst performer in the months of January and February and best performer in April, July, and December
on the hit ratio and return matrix.
Sector rotation indicates in the first two months of calendar year, Consumer Durables and BFSI are the worst
performing sectors with just 20% hit ratio (1 / 5 years the sector has positive returns) and average return of -6%.
Metal is the best performer in the month of April with 13.8% average return and 80% hit ratio. BFSI and Consumer
Durables make a come back in the second quarter with average return of more the 6% and a hit ratio of 100%.
Auto (-ve 5%) and Metal (-2%) perform badly in October and November, respectively, with a hit ratio of 40% and
20%.
As markets are in full swing in the month of December, the high beta Metals registers best gains of average 10.6%
with a 100% hit ratio.
These findings are based on historical performance and can be used as a platform for monthly sector rotation and
reallocation of the sector weights
Developed markets racing ahead
With green shoots of recovery sprouting in
the developed world, stock markets have
started factoring in the same. In the last
few months, our domestic benchmark Nifty
has been a laggard compared with
prominent global indices. Inflationary
conditions in emerging markets have
compelled investors to flee these high
return avenues in search of safer havens
(risk aversion). A stream of positive data
flows from developed markets is convincing
the investors about the recovery.
Metals: Better times ahead (Our metals analyst Prasad Baji)
With global recovery gaining momentum, metals appear ripe for a good show ahead. Global lead indicators are pointing
to a revival in growth ahead. We expect steel margins to expand in spite of head winds in the form of costs. This
expansion will be aided by increased demand. Pick up in construction in the developed world and reducing inventory
levels in China will be key demand triggers.
In this space, we like Tata Steel and JSW Steel (though for JSW Steel interest costs can be a dampener). Rally in
aluminium will be a story of demand outstripping supply. Factors like uptick in demand from user segments (auto,
packaging, and durable goods) and the China factor (supply struggling to keep pace with demand) should be good for
aluminium prices. We like Hindalco owing to its robust business model.
IT: A safe play on global recovery (Our IT analyst Ganesh Duvvuri)
IT companies reported strong volume growth due to continued demand momentum which was in line with estimates.
With an appreciating rupee and strong employee addition to lower utilization rates, we believe companies could find it
challenging to meet margin expectations.
However, taking into account double digit growth in IT investments by US businesses for 9mCY10 and pick up in
service and manufacturing index of UK in January 2011, we expect Indian IT industry (export market) to surpass
current projections for FY12. Our top pick is TCS which is helped by factors like renewals in deal market that will enable
market share increases and sustained improvement in IT spending (i.e., revival and embracing off shore market).
Banks: Not yet out of the woods (Our banking analyst Nilesh Parikh)
Once the blue eyed boy of investors has now fallen off grace. Margin pressures are getting highlighted in ongoing
Q3FY11 results. The current inflationary and sparse liquidity scenario induces further pressures in the form of rate
hikes and scramble for deposits. Other concerns include asset quality and tepid credit growth in the infra space. Budget
will be a key event to watch as the government will forecast its borrowing programme for the next fiscal (will provide
cues on liquidity).
Looking at current inflation levels, we expect further hike in repo and reverse repo; however, we do not anticipate any
CRR hike. The key thing to watch out in coming months will be RBI’s private licensing policy. For now, looking at the
liquidity situation and margin pressure, we prefer banks with higher CASA deposits. Also, the recent correction has
made the sector much more attractive. In the public sector space we prefer Bank of Baroda. Among private players, we
like ICICI Bank and Axis Bank.
Technical View (Our technical analyst Tejas Shah)
The optimism of 2010 turned into a rude shock in the New Year as the index hit a wall at 6200. Nifty dipped ~1000
points (17.5%) and closed below the crucial 200 day SMA and damaged the market’s bullish technical structure. We
now brace for a retracement of the 2009-10 bull market which means lower levels on the index in coming weeks.
Sectors most hurt in the carnage were Autos, Cap Goods and Oil & Gas. Seasonally, February is a low volatility and flat
returns month, hence, the preferred outlook for the market is of a sideways to downward bias where the index is likely
to trade within the 5650-5200 range.
In the first week of January the index made a long ‘bearish engulfing’ candlestick pattern which was followed by a week
of further decline. Mid-week saw some consolidation and then continuation of the fall. Momentum oscillators once again
rolled bearish and will likely keep the selling active. Nifty has entered within the eight month consolidation range
territory that has an implication of dragging down to the lower end of the range at 5200.
Emerging benchmarks in hibernation; TAIEX the sole gainer
Markets have been jittery following more than a week of anti-government protests in Egypt due to fears that the
crisis could spill over to other countries in the crude-rich but politically volatile Middle East. Further increase in oil
price above the USD 100 per barrel mark could pose a significant risk to the global economy.
Developed markets came back strongly, with the CAC 40 posting resounding gain of ~5.3% during the month. It
was the worst performer in the previous month, not only among developed markets but also globally.
Stream of positive data flow from US markets is convincing the world of a recovery. ISM’s manufacturing PMI came
in at 60.8 against 58.5 last month. Unemployment rate came in at 9% against 9.4% last month.
After a positive December, Indian benchmark indices took a beating in January. Among inflation concerns and FII
selling, markets corrected and have dipped significantly.
Emerging markets were weak with only the TAIEX gaining ~1.9%.
Among EM benchmarks, the SET was the biggest dragger, down ~6.6%.
Among developed markets, the CAC 40 was the highest gainer (returns of ~5.3% in January). Other gainers were
DJIA and S&P 500, gaining ~2.7% and 2.3%, respectively.
FII flows going out of EMs
FIIs were net sellers in India for the first time in the past eight months. Taiwan, among EMs, witnessed maximum
FII inflows of ~USD 3.4 bn.
In India, FIIs were net sellers of ~USD 2.02 bn (cash +
futures). In the cash segment, FIIs sold ~USD 1.38 bn,
while in futures they were net sellers of ~USD 0.63 bn
in January. In FY11, FIIs have been net buyers (cash +
futures) of ~USD 18.35 bn.
Domestic funds net buyers
Following the previous month’s trend, domestic
mutual funds were net buyers in January as well.
They were net buyers of ~USD 131 mn of Indian
equities. In FY11, till date, domestic mutual funds
have sold ~USD 4.57 bn of equities.
Auto and capital goods among top laggards; consumer durables relative saviour
Auto (down ~13.1%) and capital goods (down
~12.3%) were laggards in January.
Consumer durables (down 5.7%) and IT (down
~6.6%) were the relative saviours.
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