India Infoline Weekly Newsletter – December 13

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Rajesh Desai

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Dec 13, 2013, 11:18:09 PM12/13/13
to LONGTERMINVESTORS, library-of-eq...@googlegroups.com, DAILY REPORTS


At the start of the week, a thumping victory by BJP in 3 state elections provided the ammunition for the bulls to scale past its all time high at the start of the week. However, failure to sustain at higher levels and uncertainty about the potential impact of reduced Federal Reserve spending brought the markets lower. Nifty had seen a rally of ~400 points in the last three weeks including a strong rally on Monday. Thereafter, the market has been sliding for the rest of the week.

 

On the macro front, it was a double whammy. IIP contracted to -1.8% in October and CPI touched a shocking 11.24% mark in November, which weighed heavily on the sentiment on Dalal Street. In the coming week, the market will take cues from the monetary policy meet among others. We expect RBI to raise the repo rate by 25bps in the Dec 18 monetary policy. The odds of rate hike have increased substantially post the sharp uptick in the November CPI. Though core inflation was benign, the risk of spillover of high food inflation into the core remains. If WPI inflation data also shows a material uptick then it would create an outside chance of 50bps repo hike.

 

Any kind of liquidity tightening measure cannot also be completely ruled out as call money rates have declined below the repo rate, which seems inconsistent with RBI’s anti-inflation stance. Banking stocks have largely priced-in a 25bps rate hike; therefore, further reaction is hinged on any surprises in WPI data and the policy. Incremental 5-7% correction in banking stocks would represent an attractive buying opportunity from medium term perspective.

 

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CA. Rajesh Desai
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