WEEKLY Update 22nd – 26th March

Global market sentiments together with continued buying by foreign institutional investors led domestic markets to pose one of the best six consecutive weekly gains after almost a year. The fact behind such a move is that market participants are gaining a lot of confidence & believe that the domestic economic activity is getting stronger & stronger over the period.

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Encouraging advance tax payments for the Q4 March 2010 also assured the market participants for better than expected corporates profit. As expected Standard & Poor’s (S&P), the credit rating agency revised India’s outlook to ‘stable’ from ‘negative’ with the government’s pledge to reduce fiscal deficit over the next three years in the budget.

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The move complemented overall sentiments of the market post the S&P upgrade as some foreign investors who were restricted from investing in countries below a certain degree of credit worthiness would now come to the market. On the expected lines of monetary tightening, RBI surprised the markets on the last day of trading by increasing both policy rates by 25 bps, a month before its quarterly meeting scheduled in April.

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In the light of sustained pickup in economic activity & headline inflation passing through the baseline projection of 8.5 for end-March 2010 has induced RBI to come up with such stronger action. Moreover, non-food manufacturing products that constitutes 52.2 per cent weight in WPI has seen sustained rise from negative (-0.4 per cent) in November 2009 to 4.3 per cent in February 2010.

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Increasing capacity utilisation and rising commodity and energy prices are exerting pressure on overall inflation. The small hike of 25 bps in policy rates is considered only as a signal & if needed, RBI may come out with more of such steps in case of sustained inflationary conditions in the economy. In the coming week, interest rate sensitive like, Auto & Real estate stocks may see some pressure on the expectation of dearer loans in the future.

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Overall trend of world markets is still up but the rise in dollar index every now and then gives some fear to the rally in commodities. Dollar index, which is at current levels of 80.75, if closes above its key resistance level of 81, can give jitters to various commodities and stock markets so one should take care. Nifty has support between 5150-5050 levels and Sensex between  17200-16800 levels.

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Range trading from last few weeks has kept investors in a fix. Ambiguity over the next move is refraining investors to take large positions in commodities. Currency has become crucial here. Greece concern is capping the upside of euro and dollar index is not breaking its range.

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Furthermore, there is no as such big fundamental news which can give a clear cut direction to commodities. Some supply disruption in copper and nickel can support the prices at higher side. Hence, cautious trading is advised for investors.

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Even in agro commodities, arrival pressure in many commodities is limiting the upside despite the steady demand. Once arrivals get clear, bottom formation is expected in many agro commodities.

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