The markets are very crucially poised and there seems to be no consensus which way we are headed. Till last Thursday the street was optimistic in the short term and expected markets to rally anywhere between 7-9% between now and pre-budget. The optimists were talking about a new high before the budget. Friday’s price movement which saw a carnage on the bourses which did not reflect in the final index movement only due to a better than expected performance from Infosys which saw the stock gain over 15.5% for the week saved the markets from a complete drubbing.
Inflation numbers would be released today and they are important because RBI is to meet for its review meeting on 29th January and whether the government’s efforts to rein in inflation are bearing fruit or not would be seen. On the subsidy front, railway passenger fares for general class was raised for the first time in ten years, while they were raised for AC and first class for the fourth time in this year. This made many feel that diesel prices would also be raised but that just did not happen.
Elections to three NE states would be held in the last fortnight of February reducing considerably the window for the government to introduce reforms prior to the budget session. The single biggest driver in the markets is liquidity and FII’s seem to have opened a tap from which money simply flows. They have invested over Rs 3,850 crs last week and they seem to be unstoppable.
Our FM is to meet them on a road show in Singapore and Hong Kong on the 21st and 22nd January and there can be just one agenda to highlight the intent of the government to reform. Fears on the sovereign downgrade would also be assuaged and generally a feel good factor is expected to emerge post the meeting.
Tax free bond issues are currently on and one by one the issues are opening and closing. The response is quite muted and issues from REC, PFC and IIFCL are over while HUDCO is currently on. The issue from IRFC is slated to open in the week beginning 21st January while it is believed that NHAI would follow thereafter. The coupon rates have dropped and the secondary yields are slightly better than what non retail investors would earn. Clarity on these issues would be available once RBI meet is over.
On the primary market front, quite a few issues are waiting to tap the markets. SEBI has very cleverly started to tighten the noose around merchant bankers who are seen as the key players for over pricing he issues and hence leading to losses post listing. They first introduced a voluntary safety net and are now in the process of introducing a compulsory safety net for retail investors. There is a veiled threat that if proper pricing is not done, SEBI is ready to remove free pricing regime and introduce price controls akin to the yester years of CCI (Controller of Capital Issues) when the issue was priced as per formula. Hopefully things maybe better on this front with government also set to launch a couple or more of OFS (offer for sale) issues in the remaining part of 2012-13.
The markets need to consolidate and then break upwards to 20K on the SENSEX and 6,100 on the NIFTY for momentum to come into the market. This can only happen if the government takes some steps to reduce the fiscal deficit and announce intent of more reforms. Easing of inflation and therefore the greater possibility of rate cuts in the next fortnight will be a welcome relief for the market. Readers must bear in mind that the January futures expire on the 31st of January which allows traders to hedge and play on the RBI meeting event. It’s a big relief for traders and gives them an opportunity to play the markets at will.
In conclusion, keep your fingers crossed and hope all is well. By the end of the day there would be some clarity which way we are headed, but I would give a lot of weightage to the FM’s meeting with FII’s next week. Keep reading this site.
