Week rupee continues to weigh on market sentiments

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In the month of June 2013 Benchmark indices ended negatively. While BSE Sensex lost 1.80% & Nifty fell down 2.40%. Continuing worries over capital outflows coupled with fresh weakness in the rupee cast a shadow on stock markets. Depreciation of rupee value against the dollar continued to weigh on the market sentiments.

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Week rupee continues to weigh on market sentiments

  1. 1. MONTHLY ROUNDUP (June’13) EQUITY COMMENTARY Lead Indices In the month of June 2013 Benchmark indices ended negatively. While BSE Sensex lost 1.80% & Nifty fell down 2.40%. Continuing worries over capital outflows coupled with fresh weakness in the rupee cast a shadow on stock markets. Depreciation of rupee value against the dollar continued to weigh on the market sentiments. Week % Change Key positives Key negatives no. Sensex Nifty India's services sector activity expanded in HSBC's India manufacturing PMI, which May and the pace was the fastest in three gauges business activity in Indian factories but months, driven by up tick in new orders. not its utilities, eased to 50.1 in May 2013 from India is likely to raise the cap on foreign 51 in April 2013 led by a fall in output and a 1 -0.90 -1.00 institutional investment in government debt by Slow down in new orders. $5 billion soon, two finance ministry officials said during the week, to support the sliding rupee and fund a widening current account deficit. The wholesale price index (WPI)-based India's growth prospects continue to remain inflation fell further to 4.70% in May from "below trend" even as most of the major 4.89% in April. This is the second month in a economies are witnessing moderate row that inflation remained in RBI's comfort Improvements. 2 -1.40 -1.20 zone of 4- 5% The IIP growth in April slowed to 2% Y-o-Y, as against an upwardly revised 3.4% growth in March, increasing the clamour for rate cut by the RBI and faster project clearances to boost Investments. The Reserve Bank of India (RBI) in its June mid quarter monetary policy left its key policy (repo) rate unchanged at 7.25%. Cash reserve ratio (CRR) remained at 4%. India's employment rate has slipped to 38.6% in 2011-12, from 39.2% in 2009-10. 3 -2.90 -3.20 India’s trade deficit widened in May as gold imports rose and exports contracted, exerting further pressure on the current account deficit. The rise in imports was mainly on account of a near 90% surge in gold imports to $8.4 billion during the month. The Reserve Bank of India has mandated As of the end of March, external debt rose 12.9 foreign banks limit themselves to placing per cent to $390 billion, compared with the hedging related trades on onshore forward year-ago period. The increase was primarily on markets on behalf of clients, and not using account of short-term trade credit, external 4 +4.60 +4.50 existing client positions to make other trades, commercial borrowings (ECBs) and non- such as proprietary trading. resident Indian deposits. The country’s current account deficit (CAD) for the fourth quarter of 2012-13 narrowed sharply to 3.6 per cent of gross domestic product (GDP), helping a battered rupee gain some
  2. 2. MONTHLY ROUNDUP (June’13) ground against the dollar and pushing the sentiment in equity markets. Sectoral Performance All sectoral indices ended in the negative (except IT, Oil & Gas, and TECk) in the month of June. The top four losers for the month were Consumer Durable, Realty, Metal and Power, which fell by 20.28%, 10.32%, 8.81%, and 7.55% respectively. IT, Oil & Gas, and TECk, the only gainers, rose by 3.13%, 2.84% and 2.12% respectively. BSE INDICES 31 May 28 June % Change Remarks 2013 2013 SENSEX 19760.30 19395.80 -1.84 BSE-MIDCAP 6389.47 5964.50 -6.65 BSE-SMALLCAP 5943.46 5643.50 -5.05 RBI kept repo rate and CRR unchanged after mid quarter review of the monetary policy on Monday, 17 June 2013. Shares of Axis Bank, HDFC Bank and ICICI Bank fell after the BANKEX 14261.24 13257.80 -7.04 RBI imposed fines totaling Rs 10.50 crore on these three private lenders for violating 'KYC' and antimony laundering norms. Index fell on sustained capital outflows, tracking a weak trend in the global market. Index ended the Month on a negative note amid looming fear that the falling local currency may further lead to overseas investors paring positions in Indian equities. Gitanjali Gems, Titan Industries, PC Jewellers and VIP Industries were the top losers, falling 59.2%, 23.6%, 18.3% and 10.3% respectively. BSE CD INDEX 7695.00 6134.70 -20.28 Gitanjali Gems Ltd slipped, as sharp fall in gold prices and the Reserve Bank of India's (RBI) measures to curb gold sales turned the investment sentiment bearish. Continued depreciation of rupee was another factor weighted on gems and jewellery stocks as sustained depreciation in currency against the dollar may dampen the growth of the sector. CAPITAL GOODS 9407.38 9111.40 -3.15 BSE FMCG INDEX 6772.13 6458.10 -4.64 BSE 8846.91 8845.30 -0.02 HEALTHCARE BSE-100 5991.11 5802.30 -3.15 BSE-200 2409.22 2323.80 -3.54 BSE-500 7441.89 7164.10 -3.73 Index rose on a recent steep slide in rupee against the dollar. A weak rupee boosts revenue of IT firms in rupee terms as the BSE IT INDEX 6065.34 6255.10 3.13 sector derives a lion's share of revenue from exports. Stocks rose on positive economic data in the US, the biggest Outsourcing market for the Indian IT firms.
  3. 3. MONTHLY ROUNDUP (June’13) Satyam Computer, Tech Mahindra, Hexaware Tech and Wipro were the top gainers, gaining 10.7%, 9.6%, 7.7% and 7.1% respectively. Infosys rose after the company's US-based subsidiary Infosys Public Services bagged a one-year contract valued at $49.5 million from the US District of Columbia. Metal Index fell due to weak manufacturing data from China. Jindal Steel, Sesa Goa , Hindustan Zinc and Sterlite Industries were the top losers, falling 23.5%, 12.6%, 11.7% and 10.7% respectively. Jindal Steel & Power (JSPL) tumbled and was the top loser among the index as the Central Bureau of Investigation (CBI) BSE METAL 8503.01 7753.80 -8.81 registered an FIR against Congress MP and company's Chairman Naveen Jindal in the coal scam case, which added the pressure on stock. The FIR has accused Navin Jindal and Jindal Power and Steel of misrepresentation of networth and concealing previous coal allotment. They are also charged with cheating and forgery. BSE Oil & Gas 8654.79 8900.40 2.84 BSE PSU INDEX 6655.84 6163.00 -7.40 BSE TECK INDEX 3602.53 3679.10 2.12 Index fell making it the second largest loser in the month across the board. DB Realty, Anant Raj, Oberoi Realty and Peninsula Land were the top losers, falling 26.0%, 18.6%, 15.5% and 11.9% respectively. BSE REALTY 1684.92 1511.00 -10.32 Index collapsed on the back of RBI's poor inflation outlook and GDP falling to decade's low came as double whammy to investors betting on rate cut. Realty sector index suffered the most as DLF fell its lowest in more than 8 months after its first quarterly loss since at least 2007. The Government has allowed power companies to raise electricity prices to match the increase in cost of imported coal, a move that will benefit 78,000 MW of existing and upcoming plants of producers such as Reliance Power, Tata Power, Adani Power and Lanco Infratech. Adani Power, Lanco Infratech, Suzlon Energy and JSW Energy 1755.12 1622.60 -7.55 were the top losers, falling 26.9%, 26.7%, 22.5% and 21.9% BSE POWER respectively. Suzlon Energy fell to a record low, after the wind turbine maker said its January-March net loss widened from a year earlier Among heavyweights BHEL, NTPC fell on looming fear that the falling local currency may further lead to overseas investors paring positions in Indian equities. Fall in monthly sales and continued discounts being offered 11166.34 10715.80 -4.04 impacted auto stocks.BSE Auto
  4. 4. MONTHLY ROUNDUP (June’13) Global Markets WORLD MARKET INDICES PERFORMANCE Index 27 May 27 June Points Chg (%) Chg 2013 2013 US DJIA 15394.5 15024.49 -370.01 -2.40 S&P 500 1650.51 1613.20 -37.31 -2.26 NASDAQ 3459.41 3401.86 -57.55 -1.66 EUROPE Frankfurt (DAX30) 8,383.30 7,990.75 -392.55 -4.68 London (FTSE) 6,696.79 6,243.40 -453.39 -6.77 Paris (CAC 40) 3956.79 3762.19 -194.60 -4.92 ASIA Hang Seng 22686.05 20440.08 -2245.97 -9.90 Japan NIKKEI 14142.65 13213.55 -929.10 -6.57 Shanghai Comp 2292.84 1950.02 -342.82 -14.95 Fund Activity The world markets ended the month of June 2013 on a negative note. Shanghai composite, Hang Seng, FTSE, DAX, Nifty, Sensex , Nasdaq , Dow Jones and Nikkei were the losers, losing 14.95%, 9.90%, 6.77%, 4.68%, 2.4%, 1.8%, 1.66%, 2.40% & 6.57% respectively. Average daily volumes on BSE during the month of June 2013 fell 18.05% M-o-M (NSE daily average volumes were lower by 2.15% - M-o-M). The average daily derivatives volumes on NSE rose 4.7% to Rs. 1, 59,544 cr in June. FII & MF TRADING ACTIVITY IN MARCH Foreign Institutional Investor Mutual Funds Net Purchase/Sales in Equity Net Purchase/Sales in Debt Net Purchase/Sales in Equity Net Purchase/Sales in Debt -10530.10 -31341.80 -100.50 63603.60 In month of June, FIIs were the net seller of Equity & Debt worth Rs. 10530.10 & Rs. 31341.800 crore respectively. Meanwhile Mutual funds sold Equity worth Rs. 100.50 crore but they were strong buyer of Debt worth Rs. 63603.60 crore Bond Yields 10 Year Government Bond Yield – Trend At the end of June 2013 Indian G-Sec bond yields ended up by 20 bps at 7.44% over May 2013. The Indian yields took cues from bounce back in the US bond prices from two year lows and further the Rupee movement is expected to be key in trade. Benchmark yield rose to six-week high, as foreign funds continued to sell domestic debt as the rupee hovered near a record low. Yields rose on concern of a plunge in the rupee will spur inflation and reduce room for the central bank to cut borrowing costs.
  5. 5. MONTHLY ROUNDUP (June’13) Commodities In June 2013, the Reuters/Jefferies CRB Index of 19 raw materials ended lower by 2.21% to close at 275.62 The CRB fell as the dollar jumped to a three-week high against the euro after European Central Bank President Mario Draghi spoke about downside risks to euro zone growth. Most commodities are priced in the dollar and gains in the currency add to ownership costs for such raw materials. The fall in the Reuters/Jeffries CRB Index was on account of a fall witnessed in commodities like Natural Gas (down by 14.73%), Live Cattle (down by 3.95%), Silver (down by 11.94.%), Gold (down by 10.62%), Coffee (down by 3.14%) Cocoa (down by 3.35%), Sugar (down by 0.7%), Cotton (up by 4.68%), Nickel (down by 6.77%), Crude Oil (up by 1.63%) and Wheat (down by 8.6%). Natural gas futures fell to the lowest price in almost four months, capping the first quarterly drop since March 2012, on speculation that lower-than-average temperatures will limit demand. Gold and silver both fell upon slack demand at prevailing higher levels amid a weak global trend. BEHAVIOR OF COMMODITY PRICES DURING JUNE 2013: Commodity 30 May, 28 June, M-o-M % Chg 2013 2013 Gold 1393.00 1211.60 - 13.02 Crude Oil 91.97 96.56 4.99 Aluminum 1903.00 1775.00 -6.73 Tin 20895.00 19850.00 -5.00 Copper 7270.00 6750.00 -7.15 Zinc 1913.00 1854.00 -3.08 Nickel 14700.00 13705.00 -6.77 Lead 2186.00 2058.00 -5.86 Behaviour of commodity prices (including LME 3 month buyer prices for base metals) during the month ended June 2013 is given below. The base metals pack traded on a negative note as investors cashed out of commodities after US Federal Reserve Chairman Ben Bernanke laid out a timetable for scaling back the central bank's stimulus program. A weak set of manufacturing data from top metals consumer China also weighed on prices. The Baltic Dry Index (BDI) climbed 44.75% in the month to close at 1171. The Baltic Dry Index, a measure of costs to transport minerals and grains by sea, fell as demand for the two biggest vessels classes slowed. Demand for both vessel classes has slowed amid an oversupply of ships in the global fleet. Currencies USD to: 31 May, 28 June, M-o-M % 2013 2013 Chg Pakistani rupee 99.42 99.82 0.40 Hong Kong 7.76 7.76 0.00 dollar Chinese Yuan 6.22 6.19 0.10 Indian Rupees 56.35 60.44 7.30 Taiwan dollar 30.04 30.06 0.10 Singapore dollar 1.26 1.27 0.40 Argentine peso 5.28 5.38 1.80 Euro 0.76 0.77 -0.30 Thai baht 30.21 31.17 3.20 Malaysian 3.08 3.19 3.60 ringgit Japanese yen 101.03 98.07 -2.90 Indonesian 9832.84 9950.25 1.20 rupiah Brazilian real 2.11 2.19 3.70 Korean won 1130.07 1151.01 1.90 The USD was positive vs other currencies in June 2013. The dollar rallied after U.S. economic data came in better than expected and traders continued to speculate about the future of Federal Reserve policy. Also dollar rose amid new signs the U.S. housing recovery is gaining steam, supporting the view that the economy is strong enough for the Federal Reserve to begin winding down its monetary stimulus later this year.
  6. 6. MONTHLY ROUNDUP (June’13) OUTLOOK GOING FORWARD GLOBAL: US QE tapering possible in the coming months After almost a month of nervous speculation, jittery markets, and creeping interest rates, Fed Chairman Ben Bernanke met the press on June 19, 2013 following a two-day policy meeting of the Federal Open Market Committee. His chief message was that: The Fed is not ready to wind down its emergency stimulus programs just yet, an exit strategy that has come to be known as tapering. But if the economy continues to grow as projected, tapering will go into effect as soon as this year. Overnight interest rates in the U.S. have been near zero since December 2008 as the Fed has more than tripled its balance sheet to around $3.3 trillion with its bond buying. The Fed's quantitative easing (QE) has helped drive up prices in risk assets across the globe over the last 12-18 months. However, the recent talk of QE tapering has hit all the asset classes. While the Fed has said the stimulus withdrawal depends on the performance of the US economy, the prospect of an end to almost five years of cheap money sloshing around the global financial system was enough to strike fear into the hearts of investors. The USD currency has been rising since this fear, while the currencies of all emerging markets, such as Indonesia, Thailand and Brazil have depreciated, and India is no exception. The equity markets across the globe, especially the emerging markets have witnessed a sharp correction in the near term. The pullback of QE would be contingent on the economic data relating to employment and inflation in the US. Its tapering could have a significant impact on all assets globally. It is likely to hurt the outperforming regional equity markets, which have benefited from easier liquidity and foreign fund flows. Emerging markets, including India, will not remain unscathed. In capital starved India, any capital outflow will impact the currency and the economy, given its twin deficits. To fight the depreciating currency, the interest rates would remain high, which could result in stagflation - low growth in an inflationary environment (with benefit of lower commodity prices offset by currency depreciation). Commodity Bull Run has peaked out Due to concerns over the possibility that the Federal Bank will end stimulus and the worsening economic situation globally, especially in China, commodity prices have fallen across the board, including that of gold, copper, and crude oil. We feel that the commodity Bull Run seems to have ended now and we could see further deceleration in the commodity prices in the coming quarters, since we expect the QE pullback in the next few months and the global economic recovery is expected to be moderate. The lower commodity prices are likely to have a significant impact on the emerging markets dependent on commodity exports like Brazil, Indonesia etc. While the lower commodity price bodes well for the net importing countries like India, the recent sharp currency depreciation is likely to offset the gains in the near term. However, over the long run, net importing countries could certainly benefit out of fall in the commodity prices. Indian Market Outlook: Progress on reforms happening The government is lining up a spate of decisions as part of a campaign of reforms aimed at lifting the economy out of its worst slump in a decade. The thrust of the reforms is two-fold: increase inflows to cut the current account deficit that has triggered an alarming depreciation of the Indian currency, and break the logjam holding up investments in infrastructure. The UPA government recently followed up its bold decision to increase prices of natural gas by outlining ambitious plans to build infrastructure, a move that is likely to restore some faith in the economy in a politically significant year. The gas price hikes would certainly encourage the exploration activities and stimulate the economic growth in the medium to long term. Incremental gas production from FY15 should result in some noticeable savings on the import bill. The government’s incremental revenue due to the higher gas prices is likely to be higher than incremental subsides towards the fertilizer, auto fuel/household fuel and power sectors. After the gas price hike, the FDI norms should follow soon in our view. India's near-$260 billion of reserves are barely enough to cover six months of imports, down from nearly 15 months in 2008. The finance ministry is driving a massive
  7. 7. MONTHLY ROUNDUP (June’13) reform of the FDI regime that could see an increase in foreign investment limits for defense and multi-brand retail, the so- called sensitive sectors. Based on the recommendations of a committee headed by Arvind Mayaram, secretary in the department of economic affairs, top bureaucrats will present a FDI reforms agenda that the FM has said will be taken up in the third week of July. Sharp decline in rupee could delay the interest rate cut The rupee has depreciated against the US dollar by around 10% since May (touching a closing low of 60.59 on June 27 and then recovering a bit). A weak rupee would impact the imported component of inflation, of which crude oil is a major component. Since ~34-35% of the commodities in WPI basket are global commodities, sharp rupee depreciation is like to exert inflationary pressures. A 10% depreciation of the rupee is expected to lead to a 0.6%-0.8% increase in WPI. This would reverse the trend of inflation in the coming months, which has been moderating at a rapid pace (4.7% in May 2013, at a 43 month low). Further, CPI inflation, though moderated gradually (from 10.9% in Feb 2013 to 9.3% in May), still remains on a higher side. With the concerns of inflation increasing in the coming months, RBI would certainly not be comfortable in cutting the interest rates in the coming months. RBI has stated before that it would continue to focus on inflationary situation and take steps accordingly in cutting the rates. The RBI is likely to delay the rate-cutting cycle in order to balance out the interests of growth with currency management. Delay in the rate cuts could also delay the economic growth recovery. Earnings take at least six to eight months in the best case to respond to rate cuts. If the interest rate cuts are delayed, then the recovery in the growth could also be moderate in the coming year. CAD concerns to remain India's March quarter current account deficit was USD 18.1 bn, or 3.6% of GDP, lower than expected and below the USD 21.7 bn deficit a year earlier. However, on a full year basis, the current account gap for the full fiscal year ending in March 2013 was USD 87.8 bn, which was 4.8% of GDP, compared with USD 78.2 bn a year earlier. The balance of payments for the Jan-March quarter was a USD 300 mn surplus, compared with a $600 mn deficit a year earlier. For the fiscal year 2012/13, the balance of payments deficit was USD 2.7 bn, compared with a surplus of USD 2.4 bn a year earlier. While the CAD has moderated in Q4, it looks deceptive in suggesting an improvement. A closer look at the data put out by RBI shows that the next few months are going to be challenging and the CAD as a percentage of GDP may worsen in the remaining quarters of 2013-14. First, the main reason for the improvement in the headline number was that imports in Q4FY13 contracted by a percentage point as compared to the previous year. A worrisome aspect of India's external sector over the last few years has been the growing proportion of short-term debt that has financed CAD. At end March 2013, India's short-term debt to foreign exchange reserves stood at 33.1% as compared to 26.6% in the corresponding period of the previous year. An increasing proportion of short-term debt, when the country is simultaneously subjected to negative global influences, increases the riskiness associated with the economy. Things could worsen as the redemption pressure on foreign borrowings will be high this financial year even as foreign portfolio investors have begun to reduce their exposure to India. Political uncertainty ahead of state and general elections With state & general elections around the corner, the markets could witness sharp volatility. Policy decisions would be timid & only rhetoric will not be enough to calm the markets or foreign investors. Political uncertainty is likely to rise. While the government is pushing hard on reform measures, we need to watch out whether they would continue or slowdown their reforms in this election year. In FY14, CAPEX could be muted, as the spending on election campaigns would increase.
  8. 8. MONTHLY ROUNDUP (June’13) TECHNICAL COMMENTARY CNX NIFTY On the daily chart of Nifty we can see that Nifty has paused its down trend rally and bounced backed from its support level of 5550. This bounced back rally may continue to the level of 6100 to 6200. Nifty has started its pull back rally from the level of 5550 but could not breach the level of 5980. Currently Nifty is trading below its 100 days, 50 days & 20 days DMA. Bearish trader can use this fall to exit from their short position. Aggressive traders can make long position in the range of 5650 to 5750 with the strict stop loss of 5500 for target price of 6100 to 6200. Resistance 1 5980 Resistance 2 6150 Support 1 5550 Support 2 5450 RR Insurance Brokers 47, M.M. Road, Rani Jhansi Marg Jhandewalan, New Delhi-110055
  9. 9. MONTHLY ROUNDUP (June’13) STOCK IDEAS RAYMOND CMP 253 TARGET 274/294 SL 230 OUTLOOK Bullish ENTRY RANGE Near 250 TECHNICAL VIEW: - On the daily chart of Raymond, we can see stock has bounced back from its lower levels and has given closing above its resistance level of 252. We can also see heavy market participation at lower levels. Technical indicator RSI and MACD Histogram are also showing strength in stock by forming bullish divergence between price and indicators. This pull back rally can continue to the levels of 274 and 294. Aggressive traders can buy Raymond near 250 with stop loss of 230 for target price of 274 and 294. ADITYA BIRLA NUVO CMP 1095 TARGET 1150/1190 SL 1060 OUTLOOK Bullish ENTRY RANGE Near 1090 TECHNICAL VIEW: - On the chart of Aditya Birla Nuvo, we can see stock was trading in the range of 1020 - 1087. Stock has broken its range in upper side with good volumes. Currently stock is trading above 8 days, 13 days and 21 days EMA. Technical indicator RSI and Stochastic are showing strength in stock. Investors can make long position in stock near 1090 levels with stop loss of 1060 for target price of 1150/1190.
  10. 10. MONTHLY ROUNDUP (June’13) RELIANCE CAPITAL CMP 361 TARGET 389/410 SL 325 OUTLOOK Bullish ENTRY RANGE Near 352 TECHNICAL VIEW: - On the chart of Reliance Capital, we can see stock has bounced back from it support level of 1030. Stock has broken its resistance level of 350 with good volume and given closing above that level. Currently stock is trading above 8 days, 13 days and 21 days EMA. Technical indicator RSI is showing strength in stock. Investors can make long position in stock near 352 levels with stop loss of 325 for target price of 389/410. SESA GOA CMP 149 TARGET 174 SL 135 OUTLOOK Bullish ENTRY RANGE Near 145 TECHNICAL VIEW: - On the daily chart of Sesa Goa, we can see that stock has bounced back from its lower levels. Currently stock is trading above its 8 days, 13 days and 21 days EMA. We can see bullish divergence between price and MACD Histogram. Trend following indicator RSI is also showing strength in stock. This pull back rally can continue to the levels of 170-174 so investor can make long position in stock near 145 levels with stop loss of 135 for the target price of 174.

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