Markets have displayed commendable resilience this week notwithstanding a plethora of major negative news-flow in last few weeks such as Low GDP growth, weak IIP data, continuous depreciation in rupee, rise in inflation, policy rates held steady by RBI as against hope of a rate cut & revision of India's outlook to negative from stable by 2 major ratings agencies S&P and Fitch.
Key benchmark indices Nifty & Sensex ended the week on a flattish note while BSE small cap as well as mid-cap index inched higher by approximately 1% each.
RBI in its monetary policy meet on 18th June 2012 held CRR & Repo rate steady at 4.75% & 8% respectively stating that even though growth has moderated, Inflation still remains above its comfort level & cutting rates further could worsen inflationary pressures.
It further stated that the Government needs to step in with major structural reforms & slowdown in growth was not as a result of high interest rate but as a result of factors other than that, possibly hinting at Government's policy paralysis.
After S&P, it is now the turn of FITCH to lower India's outlook to negative from stable i.e its lowest investment grade BBB- rating citing reasons such as stalled reforms, high inflation & limited progress on fiscal consolidation.
FITCH has also cut credit rating outlook of 11 Financial Institutions from stable to negative. This includes PSU as well as private banks such as Canara Bank, SBI, PNB, Bank of Baroda, Axis Bank, IDBI, IDFC & IRFC. The outlook revision of these financial institutions reflect their close linkages with the sovereign by virtue of their high exposure to domestic counter parties like SEB's & holdings of domestic sovereign debt.
Rupee is continouosly plumetting to newer historic lows every week. It has touched a new historic low of 57.53 vs US$ & closed at an all time low of 57.12 vs US$. This persisting weakness is due to overall demand pressure for Dollars from OMC's & from corporates who have ECB & FCCB payments due in the near future.
The only silver-lining can be the softening prices of crude oil which has tumbled from 124$ per barrel in March/April to 89$ per barrel in June. Ideally Equity markets should rally & display a sense of more strength as it augurs well for corporate profitability owing to low input costs. But the continuous fall in rupee has mitigated most of the benefits arising from the fall in crude prices.
It is important that Rupee forms some sort of a bottom around 57-58 zone because incase it breaches 58 vs US$ & Crude too rebounds from 90$ odd levels, then the entire equation could change & resilience displayed by the markets could end & we can witness an increase in the negative sentiment.
Statements from the IMD with respect to the progress of Monsoon so far have not been encouraging. The IMD has stated that the monsoon rains in 2012 would be 96% of the long-term average overall , down from its earlier April forecast of 99%.
Hence market participants would keenly focus on the monsoon trend & statements from IMD on progress of Monsoon as it could help in reviving the economic growth & bring down food inflation under check.
On the Global Front,
Greece Elections saw leftists lose out to pro-austerity parties while the FOMC meet in US failed to commit to an aggressive QE3 but extended Operation Twist to end of 2012.
Manufacturing PMI data for the US, Euro-Zone & China have been disappointing & could be an early indication of a downturn in global growth.
Market participants would closely focus on key developments regarding the outcome of the crucial EU meet which will be held on 28th & 29th June 2012 to reach a consensus & come out with some concrete remedial measures on the Euro-zone crisis.
Outlook for the next week :
Nifty PCR OI has increased from 1.51 to 1.52 levels with highest OI built-up witnessed in 5200 CE & 5000 Puts suggesting a near-term range of 5056-5268. Nifty futures closed at a premium of 5.10 point against the premium of 8.65 points to its spot. Next month future is trading with premium of 25.60 points.
Last Week despite negative news-flows on macro-economic front, Nifty Futures managed to hold 5080-5090 zone & buying support was witnessed from these lower levels.
Hence If this strong support zone 5056-5063 holds, we can expect this pullback to continue upto 5256-5260.
Also, Further pullback in Nifty Futures upto 5350/5420 would be witnessed only incase 5260-5268 is crossed & sustained.
In case it fails to cross & close above 5268, will be in the trading range 5056-5268.
Once Nifty Futures breaks & closes below 5056, it could drift to lower levels of 4965/4878.
