Narayan Murthy beat the streets and the numbers from Infosys were above expectations. The share gained post the results and also helped the SENSEX intraday soar by about 160 points, but it was simply not enough. The net gain on the SENSEX was just 54 points for the day yet negative 0.45% for the week. Similar was the case with Infosys which saw sharp gains on the back of short covering post results, but still closed negative for the week down an identical 0.45%.
Industrial production data for November was negative 2.1% on a year on year basis and manufacturing output was negative 3.5%. This does not augur well as the so called green shoots seen in September have now vanished. In the first eight months of the financial year, the industrial output is negative 0.2%. Exports have grown 3.4% in November and the trade deficit was at 10.14 billion dollars. Foreign data trends where exports are rising and imports contracting or remaining unchanged, if they continue would be positive for the current account deficit.
The government has spent 94% of the budgeted deficit in the first 8 months of the financial year and is cash strapped. It is looking to raise money from cash rich PSU’s by way of special dividends, buybacks and the dangerous cross holding of shares. The markets are worried only about the last option as it means investing in equity unnecessarily by companies. This is a big negative for the markets and would destroy shareholder value. The possibility of it happening is bright because the FM has sworn to maintain an impossible 4.8% fiscal deficit of GDP. The illusory figure would be achieved if at all at what cost is not far to imagine. Large Income Tax refunds for the last two years have not been processed, subsidies are not being paid but instead bonds to oil companies are being issued, expenditure cuts are being undertaken and most shocking would be that the government would do jugglery to defer 2 months’ salary to the next year against the conventional one. If after doing all this they do manage to come close to 4.8%, does it really matter?
The stake sale approved in Axis Bank by the government put pressure on the share and it was the biggest loser for the week. The stock lost Rs 96 or 7.61% to close at Rs 1165. Shares of FT or Financial technologies were a big gainer after a newspaper house with a Business channel mentioned that FT stake would be bought by LT Infotech and then Tech Mahindra. These unfounded rumours saw the stock gain 40% for the week at Rs 313 but one knows that these are mere rumours and there is no basis for them.
The week ahead has consumer inflation due for December and this would be the key driver of the week. CPI or consumer price index is expected to lower substantially on the back of cheaper fruits and vegetables and on this event hinges the RBI policy due towards the end of the month. If inflation eases one would be sure that there would be no change in interest rates while if inflation does not moderate the hawkish tone of Raghuram Rajan the RBI governor last time may increase rates.
The other big driver would be the about 2,500 stocks from the midcap and smallcap space coming out of exile. The PCA or periodic call auction introduced by SEBI which virtually killed the market is being amended and almost 80% of the stocks would be out of this system. Liquidity and valuations of these stocks would both improve and retail investors would be back at the bourses if nothing else to at least sell their shares. If he gets an exit there is a possibility that he may return to the markets at a later date.
A recent case was where even though the FPO from Power Grid was a sure shot for retail investors, many did not apply because they have closed their demat accounts. This is a sad story of retail investor and happening in India it indeed cuts a sorry picture. It reflects the state of confidence that retail has on the system, the regulator and the disdain he has for the powers to be after the sordid NSEL affair where the baby is being tossed from one department to another. A straight case of money siphoning is still going on and the broking community and hapless investors are being harassed about their source of funds and why they chose to invest in NSEL.
Clearly shows the apathy of the administration in nailing the issue and just skirting the same. In conclusion inflation and the performance of midcap and smallcap in their new avatar after the major revamp of Periodic call auction hold the key to the markets which are otherwise looking tired and jaded.
