Union Budget would determine the fate of Indian market
Decent growth figures will be beneficial for Indian market. Attractive levels always attract good investors and opportunities do not always last long.
Year 2010 started with a positive note in Indian stock market. Traders expressed huge buying interest in the beginning. Expectations were high. Everyone predicted an upward trend only. FIIs also bought Indian stocks during this time. Bombay sensitive index touched a peak of 17790 in January. But the situation changed suddenly.
It happened with the Q3 result announcement by heavyweights. Some of the figures were less than expected by investors, which weighed hard on Indian bourses. RBI policy announcement was the major event during this period. Anxiety regarding this policy announcement wiped out so many points from Indian Indices. Banking and Reality stocks felt the heat. US president Barack Obama's comment on banking sector, bank rate hike in China were the global factors which affected Indian stocks badly. In January, sensex lost 1107 points against its closing figure in December 2009.
Barack Obama's comment against outsourcing came as a second blow for Indian stock market. In the last week alone FIIs sold Indian equities worth Rs. 7100 crore. Altogether corporate results were mixed. Inflation still remains a major concern for policy makers. The WPI based inflation rate in India is at 7.3 percent (In December) which is the highest in 13 months. Higher food price is the main reason for this record inflation figure. In order to contain inflation RBI hiked the CRR rate by 75 basis points to 5.75. It is believed that this move would remove the excess money from the market.
January closing rate of sensex was 16358, which is 6.34 percent down from its last month closing. Sensex was within the range 15982-17790 during this period. Nifty also recorded an above 6 percent decrease from its December closing in January. It closed well below the 5000 mark and the rate is 4882. FIIs and DIIs turned out to be net sellers. FIIs sold Indian equities worth Rs. 500.30 crore. Domestic institutions also became net sellers in January, they sold equities worth 1311.30 crore. Midcap and smallcap stocks were down by 3 percent and 1.5 percent respectively.
In the sectoral front all sectors except consumer durables witnessed downward trend. Reality and metal stocks melted the most due to severe selling pressure. Reality index down by above nine percent against its December closing. Engineering and auto stocks recorded 7 percent and 6.5 percent decrease respectively.
Looking forward, the union budget is the major event in February. The budget will determine the direction of Indian stock market in the near future. After continuous selling pressure, market shows some sort of consolidation now. RBI policy had redrawn the GDP forecast to 7.5 percent from 6 percent earlier. Above 7 percent growth rate seems to be attainable. According to RBI policy, growth is the need of the hour. CRR rate hike would suck out Rs. 36,000 crore from Indian market by February end. In the union budget steps can be taken to reduce the bad effects of this rate hike. (Other rates remain the same- reverse repo, repo, and bank rate at 3.25%, 4.75%, and 6% respectively). CRR rate hike will be implemented in two phases. The first 50 bps hike will come into effect on February 13 while the next 25 bps hike will be effective from February 27.
In January Indian market witnessed a record turnover of Rs.1.92 crore. Almost all the stocks are now at lower levels. Decent growth figures will be beneficial for Indian market. Attractive levels always attract good investors and opportunities do not always last long.
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