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OP Thomas: Indian equities remain weak though ending in green
May 18, 2015
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Exclusive to The Gulf Today

Indian equities remained weak, though it ended in the green appreciating less than 90 basis points from the previous week’s close.

It looks like a reversal is around the corner but the market is scouting for triggers like a rate cut by the Reserve Bank of India (RBI) in its June 2 policy and a reconfirmation of a delayed Fed rate hike to September if the economic data like housing decelerates. Besides, Greece is also being watched closely. June 5 is the day of concern as markets worldwide would punt on the country’s 1.5 billion dues it owes to World Bank in repayments. Speculations are rife that Greece could default without any bailout or concessions coming from International Monetary fund.

Meanwhile, back home the RBI’s bi-monthly policy is eagerly awaited on June 2. With the latest data on inflation showing a new low in April, the demand for a rate cut among industry bodies has only become louder.

Inflation in April hit a new low of negative 2.65 per cent largely due to falling in fuel prices and manufactured goods. Food items, however, remained expensive. With the recent sharp hike in petrol by Rs3.31 a litre and that of diesel by Rs2.71, prices of food articles will resume their north bound journey once again.

But now it is the turn of the government to ensure food prices do not surge so that the RBI could lower rates from the present 7.5 per cent level. In the secondary bond market, however, yields have been on the surge after foreign institutional investors (FIIs) continued with their selling that began since the start of this month.

Ten-year yields are currently at 7.95 after hitting a high of eight per cent last week. The yields are much above RBI’s benchmark rate of 7.5 per cent.

FIIs have been sellers of bonds as well as equities. They have, since May 1, sold bonds worth Rs94 billion till date, while in equities, they have net sold to the tune of Rs47 million. One of the major reasons for FIIs turning net sellers have been the government’s move to introduce minimum alternate tax (MAT) on them if they were registered in countries that did not have a tax treaty with India.

Whether the money is going back to other economies is not yet clear, but it is certain, FIIs are exiting and probably repatriating funds back to the home country. The weakening of rupee to 64.16 to the dollar before settling below the 64-mark is a clear indication that the demand for dollars has stemmed from largely repatriation.

The government on its part has put the taxation matter before a select committee which implies a long drawn stretch of uncertainty on this front.

FIIs have turned cautious no doubt. This means equities could remain volatile in the coming week too.

Over the five trading days ending Friday, indices were in the green but had some downward bias in the early part of the week. Strong buying support was seen around 8100 that propped up Nifty above the 8250 mark.

Over the week, the BSE Sensex was up 218.61 points or 0.80 per cent, while Nifty closed 70.85 points higher or 0.86 per cent at 8262.35.

Long-term outlook for the markets are upward, though intermittent profit-taking could bring about some aberrations.

Nifty now needs to pierce 8365 level to cross the 8500 mark. On the downside, if Nifty breaks through the 8000 barrier, the next range is 7800-7900 from where one could expect strong buying.

The coming week will also watch out the data emanating from Markit Economics on Thursday that will shed some light on the performances of economies of China, US and Japan in May.

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The author is a business analyst covering
Indian markets, banking and economy

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