The benchmark indices have gained 10% in the last four weeks and are now at levels last seen at Diwali or October-November 2010. This was the euphoria around the listing of Coal India. There is complete lack of participation in the market place and retail and HNI investors are just not interested in the market.
FII’s have been aggressive buyers and invested a little over 800 million dollars in the last week. Domestic institutions have continued to be sellers. The open interest in the futures as of last week was at Rs 48,404 crs with stock futures at Rs 30,828 crs and Index futures at Rs 17,576 crs.
The economy is showing some early signs of bottoming out but is surely in a bad state. IIP numbers for the year ended March 2013 was at 1%, the lowest level in the last 20 years. The positive side is the fact that crude prices are softening and that should be a relief for the country. The worrying sign is that with FII’s strong flows, weakening crude prices, why should the rupee fall? The rupee fell quite sharply on Friday and recorded its largest single day fall in over three months. The weekly loss was Rs 0.87 or 1.61%.
The greatest concern in India currently is the sad state of the political environment. We seem to be going from bad to worse and it appears that politicians are just not accountable to anyone. The only objective of getting elected is to make money and then make more money. The resignation of the railway minister and the law minister is not going to solve any problems but the next target would be the demand for the resignation of the Prime Minister. This would be because he was the coal minister in the period when these coal blocks were allocated and the need to alter the CBI report was to safeguard this as alleged by the opposition.
The Supreme Court has come down very heavily on the government and CBI and has stated that CBI is “like a caged parrot having many masters”. This is a scathing attack and it has asked the government to make CBI an autonomous body and present their plan when they appear again on the 10th of July. If this does happen this would be a great achievement of Indian Democracy and would help in removing the one tool that is used to garner support by arm twisting enemies and turning them into outside supporters.
Coming to the markets, global markets have been on a roll on the back of liquidity and currently India is no exception. The old adage “Sell in May and go away” is simply not working so far and markets in May are up 3% so far. The week ahead could see the left out feeling being panned out and retail and HNI who have not participated so far entering the markets. Their participation could make the markets vulnerable and extremely volatile. One would be well advised to ride the rally but be nimble footed to exit when the selling pressure steps in.