ECONOMY UPDATE
Credit Policy- a relief
Maintenance of existing interest rates in the credit policy announced on 29Th Apr by RBI provided relief. This signals that hike in interest rates is not going to be the key strategy to fight inflation. The emphasis now would be on managing liquidity in the system and fiscal measures. RBI has hiked CRR by 25 basis points to 8.25% effective 24th May. This follows a 50 basis points hike in CRR announced effective 17th April.
Forex Reserves surge
India’s Forex reserves have surged to US$ 313.53 bn as on 18 Apr 08 as compared to US$ 304.66 bn on 21 Mar 08. In last four weeks the reserves have gone up by almost US$ 9 billion.
Pressure on INR eases
The Indian currency which showed a strengthening trend during the first three weeks of the month weakened considerably against US$ during the last few days of the month. Over the month US $ hovered around Rs 40 levels. A weaker Rupee could add to inflationary pressures. However, it would be beneficial for IT industry and exporters.
FII’s - buying and selling.
FII’s were net buyers to the extent of US$ 266.6 million up to 30 Apr 08 the data for which is made available by SEBI. The first half of the month reflected selling where as buying interest emerged in second half of the month. There is a decline in the risk premium in US financial markets. The yield on Government Securities, which had fallen below 1.5% in March, has been rising and was about 2.5%. There is a reduction in spread between junk bonds and gilt.
This augurs well for future FII inflows.
Gold and Crude diverge
Crude oil continued to march ahead and scaled a new high when it came close to US$ 120 to a barrel on 28th Apr. However Gold has been in a corrective phase and touched a low of US$ 864 on 30th Apr.
Industrial production picks up
Index of industrial production recorded a growth of 8.6% YoY for the month of Feb 08. This is
considerable improvement over the month of Jan 08 when the growth was merely 5.3%. In Feb 08 the electricity production improved by 9.8% YoY. The capital goods also bounced back with a growth of 10.4% as compared to 2.1% recorded in the previous month.
Trade Deficit shrinks
Trade deficit for the month of Feb 08 at US$ 4.23 bn was the lowest recorded in FY08. The previous low was recorded in Sept 07 when it stood at US$4.42bn. Exports at US$14.24 bn were at a new high in the current fiscal. The imports shrank during Feb08 by little over US$4bn MoM.
Growth Ahead
RBI is expecting a GDP growth rate of 8-8.5% in FY09. IMF has projected a growth of 7.9% and 8% in CY08 and CY09 respectively. CMIE has come out with a very optimistic picture with 9.5% growth while some pessimistic outlooks are talking of 7% growth for FY09.
Inflation
Inflation delivered a severe blow. It crossed 7% mark and stayed there. The inflation is not likely to come down in a hurry. RBI has indicated that it is targeting for 5.5% rate of inflation for FY09 and 3% in the longer term. Government announced a number of fiscal measures to contain inflation. These included modifying excise, reduction in import and imposition of export duties on a number of products to keep the prices of iron and steel, cement, rice, milk etc in check.
MARKET ACTIVITY
Maintenance of existing interest rates in the credit policy announced on 29Th Apr by RBI provided relief. This signals that hike in interest rates is not going to be the key strategy to fight inflation. The emphasis now would be on managing liquidity in the system and fiscal measures. RBI has hiked CRR by 25 basis points to 8.25% effective 24th May. This follows a 50 basis points hike in CRR announced effective 17th April.
Forex Reserves surge
India’s Forex reserves have surged to US$ 313.53 bn as on 18 Apr 08 as compared to US$ 304.66 bn on 21 Mar 08. In last four weeks the reserves have gone up by almost US$ 9 billion.
Pressure on INR eases
The Indian currency which showed a strengthening trend during the first three weeks of the month weakened considerably against US$ during the last few days of the month. Over the month US $ hovered around Rs 40 levels. A weaker Rupee could add to inflationary pressures. However, it would be beneficial for IT industry and exporters.
FII’s - buying and selling.
FII’s were net buyers to the extent of US$ 266.6 million up to 30 Apr 08 the data for which is made available by SEBI. The first half of the month reflected selling where as buying interest emerged in second half of the month. There is a decline in the risk premium in US financial markets. The yield on Government Securities, which had fallen below 1.5% in March, has been rising and was about 2.5%. There is a reduction in spread between junk bonds and gilt.
This augurs well for future FII inflows.
Gold and Crude diverge
Crude oil continued to march ahead and scaled a new high when it came close to US$ 120 to a barrel on 28th Apr. However Gold has been in a corrective phase and touched a low of US$ 864 on 30th Apr.
Industrial production picks up
Index of industrial production recorded a growth of 8.6% YoY for the month of Feb 08. This is
considerable improvement over the month of Jan 08 when the growth was merely 5.3%. In Feb 08 the electricity production improved by 9.8% YoY. The capital goods also bounced back with a growth of 10.4% as compared to 2.1% recorded in the previous month.
Trade Deficit shrinks
Trade deficit for the month of Feb 08 at US$ 4.23 bn was the lowest recorded in FY08. The previous low was recorded in Sept 07 when it stood at US$4.42bn. Exports at US$14.24 bn were at a new high in the current fiscal. The imports shrank during Feb08 by little over US$4bn MoM.
Growth Ahead
RBI is expecting a GDP growth rate of 8-8.5% in FY09. IMF has projected a growth of 7.9% and 8% in CY08 and CY09 respectively. CMIE has come out with a very optimistic picture with 9.5% growth while some pessimistic outlooks are talking of 7% growth for FY09.
Inflation
Inflation delivered a severe blow. It crossed 7% mark and stayed there. The inflation is not likely to come down in a hurry. RBI has indicated that it is targeting for 5.5% rate of inflation for FY09 and 3% in the longer term. Government announced a number of fiscal measures to contain inflation. These included modifying excise, reduction in import and imposition of export duties on a number of products to keep the prices of iron and steel, cement, rice, milk etc in check.
MARKET ACTIVITY
The month of April 2008 has shown stability at lower levels and closed at 5165.90. On the first
day of April’08 Nifty made a low of 4628.75 and remained above this level throughout the month. Technically it has made a higher bottom in comparison to previous month, where Nifty’s low was 4468.55. Nifty has crossed above the 200-DMA at 5157, which is a positive indicator for long term uptrend. However, Nifty needs to sustain above this level for few more sessions. Volumes have been higher than the previous month, showing buying conviction among the market participants.
Global indices too have shown recovery from lower levels, however, still continues to face
resistance at higher levels. Inflation for the month of April’08 has on average remained
above 7% much above market expectations. Rising commodity prices and Crude oil which is
at its record high at around $118 a barrel continues to be important factors for deciding the
trend of the market for the coming month, i.e., May 2008. To curb inflation, RBI has increased
the CRR rate by 75 basis points to 8.25%, while repo rate and bank rate are kept unchanged.
During the month ended April’08, FIIs have been net buyers of about Rs 1074.80 Cr, which
has been contrary to previous month in which they were net seller of Rs 446.8 Cr. Mutual
funds have been net buyers of Rs 161.20 Cr. In the previous month they were net seller of Rs
2173.5Cr.
As per the sector performance, Buying conviction has been seen in IT, Oil & Gas,Metal, Midcaps, Banking, FMCG, PSU and AUTO stocks. Particularly the IT sector has been the top performer in the month ended April’08 (up by 20.14%) followed by Metal (up by 14.92%), Oil &gas (up by 14.86%), Bank (up by 14.28%), Midcaps (up by 11.06%), PSU up by (8.82%), FMCG (up by 7.48%) and Auto (up by 4.45%). Selling pressure has been seen in Capital Goods stocks and was down by 0.56%.
Future Outlook:
The month of April’08 has shown good support from lower levels. Though high crude oil and inflation rates are a cause of concern, short term rally upto 5390-5545 is likely. Nifty has managed to close above its 200-Daily Moving Average at 5157 with strong volumes, however,there is strong resistance at 5300 level in near term. Nifty’s medium-to-long term uptrend is strong if it sustains above its 200-DMA which is now at 5157. However, for short term, resistance at 5290-5300 will be crucial for deciding the trend. Bullish sentiment is likely to continue in short term, till Nifty trades above the level of 50- DMA, i.e., 4930. Profit-booking is likely to continue at higher levels as investors who have bought at lower levels during the fall, will book profits as good returns will be received in a short
time period.
For the month of May 2008, if Nifty sustains above 4990 level, then likely target on the
upsides is 5390-5545-5705. On the downside, support levels are 4990-4875-4710.
Technical Levels
Resistance levels: 5390-5545-5705
Support levels: 4990-4875-4710
day of April’08 Nifty made a low of 4628.75 and remained above this level throughout the month. Technically it has made a higher bottom in comparison to previous month, where Nifty’s low was 4468.55. Nifty has crossed above the 200-DMA at 5157, which is a positive indicator for long term uptrend. However, Nifty needs to sustain above this level for few more sessions. Volumes have been higher than the previous month, showing buying conviction among the market participants.
Global indices too have shown recovery from lower levels, however, still continues to face
resistance at higher levels. Inflation for the month of April’08 has on average remained
above 7% much above market expectations. Rising commodity prices and Crude oil which is
at its record high at around $118 a barrel continues to be important factors for deciding the
trend of the market for the coming month, i.e., May 2008. To curb inflation, RBI has increased
the CRR rate by 75 basis points to 8.25%, while repo rate and bank rate are kept unchanged.
During the month ended April’08, FIIs have been net buyers of about Rs 1074.80 Cr, which
has been contrary to previous month in which they were net seller of Rs 446.8 Cr. Mutual
funds have been net buyers of Rs 161.20 Cr. In the previous month they were net seller of Rs
2173.5Cr.
As per the sector performance, Buying conviction has been seen in IT, Oil & Gas,Metal, Midcaps, Banking, FMCG, PSU and AUTO stocks. Particularly the IT sector has been the top performer in the month ended April’08 (up by 20.14%) followed by Metal (up by 14.92%), Oil &gas (up by 14.86%), Bank (up by 14.28%), Midcaps (up by 11.06%), PSU up by (8.82%), FMCG (up by 7.48%) and Auto (up by 4.45%). Selling pressure has been seen in Capital Goods stocks and was down by 0.56%.
Future Outlook:
The month of April’08 has shown good support from lower levels. Though high crude oil and inflation rates are a cause of concern, short term rally upto 5390-5545 is likely. Nifty has managed to close above its 200-Daily Moving Average at 5157 with strong volumes, however,there is strong resistance at 5300 level in near term. Nifty’s medium-to-long term uptrend is strong if it sustains above its 200-DMA which is now at 5157. However, for short term, resistance at 5290-5300 will be crucial for deciding the trend. Bullish sentiment is likely to continue in short term, till Nifty trades above the level of 50- DMA, i.e., 4930. Profit-booking is likely to continue at higher levels as investors who have bought at lower levels during the fall, will book profits as good returns will be received in a short
time period.
For the month of May 2008, if Nifty sustains above 4990 level, then likely target on the
upsides is 5390-5545-5705. On the downside, support levels are 4990-4875-4710.
Technical Levels
Resistance levels: 5390-5545-5705
Support levels: 4990-4875-4710
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