Keynote Capitals (June-24-'11) Views on markets today

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Views on markets today

·      Indian markets gained the most in three weeks and closed on positive note yesterday as investors looked for bargains in battered down stocks, with Reliance Industries leading the gains after a disappointing performance in the year so far. The markets have ignored the rise in food inflation which has increased to two-and-half month high at 9.13% against 8.96 per cent. The Finance Minister has said the inflation levels were not acceptable and efforts are being made to bring them down. However, macro economic factors such as inflation and high interest rates are expected to keep the institutional investors on sidelines. Except real estate and pharma, all sectoral indices closed positive with consumer durable, FMCG, oil & gas and IT stocks were major gainers. Shares of oil marketing companies were in action after ET Now reported that the Oil Ministry is seeking to scrap customs duty on crude and excise duty on diesel. IT stocks also gained after the industry body said demand for outsourcing services remains strong. Maruti Suzuki closed 2.1% lower after its parent Suzuki Motor Corp's CEO acknowledged the risk that inflationary pressures may dampen Indian consumer spending and said that he was projecting slightly weaker sales this year than Maruti's official forecasts.

·      Market breadth was however weak at ~0.72x as investors sold large cap stocks. Both the FIIs and domestic institutions bought equities worth `2.29bn and `2.41bn respectively.

·      Asian shares rise in early trading, with Japanese exporters led the gains in the gains in the Nikkei while the Hang Seng is strong.

·      We expect a positive opening on account of strong Asian markets and falling crude prices. However, the food inflation rise that announced yesterday may keep gains in check.

Economic and Corporate Developments

·      Food inflation in the country touched a two-and-half-month high of 9.13% in the week ended June 11 against 8.96% for the previous week on the back of costlier fruits, milk, onions and protein-based items.