India's smaller private sector banks

India could be set for more banking acquisitions after a record $2.4 billion takeover last week ended four years of drought, but restrictive rules, reluctant sellers and sometimes difficult unions mean a flurry of deals is unlikely.

Below is a profile of the smaller banks in the private sector, which are seen playing a major role in a sector consolidation.

JAMMU AND KASHMIR BANK LTD

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Total assets: 786.2 billion rupees ($12.7 billion)

Net bad loans %: 0.22

Capital Adequacy ratio: 12.69

Return on Equity %: 21

Return on Assets %: 1.74

 

FEDERAL BANK LTD

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Total assets: 745.94 billion rupees ($12 billion)

Net bad loans %: 0.74

Capital Adequacy ratio: 14.73

Return on Equity %: 12

Return on Assets %:1.20

 

SOUTH INDIAN BANK LTD

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Total assets: 549.86 billion rupees ($8.9 billion)

Net bad loans %: 0.78

Capital Adequacy ratio: 12.42

Return on Equity %: 15

Return on Assets %: 1

 

KARUR VYSYA BANK LTD

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Total assets: 515.43 billion rupees ($8.3 billion)

Net bad loans %: 0.41

Capital Adequacy ratio: 12.60

Return on Equity %: 13

return on Assets %: 0.86

 

KARNATAKA BANK LTD

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Total assets: 363.22 billion rupees ($5.9 billion)

Net bad loans %: 1.91

Capital Adequacy ratio: 13.20

Return on Equity %: 10

Return on Assets %: 0.71

 

TAMILNAD MERCANTILE BANK LTD

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Total assets: 263.98 billion rupees ($4.3 billion)

Net bad loans %: 1.22

Capital Adequacy ratio: 15.59

Return on Assets %: 1.19

 

CITY UNION BANK LTD

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Total assets: 249.94 billion rupees ($4 billion)

Net bad loans %: 1.23

Capital Adequacy ratio: 15.01

Return on Equity %: 3

Return on Assets %: 1.44

 

LAKSHMI VILAS BANK LTD

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Total assets: 206.53 billion Indian rupees ($3.3 billion)

Net bad loans %: 3.44

Capital Adequacy ratio: 10.90

Return on Equity %: 6

Return on Assets %: 0.32

 

RBL BANK

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Total assets: 181.98 billion Indian rupees ($2.9billion)

Net bad loans %: 0.31

Capital Adequacy ratio: 14.64

Return on Assets %: 0.67

 

CATHOLIC SYRIAN BANK LTD

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Total assets: 153.16 billion rupees($2.5 billion)

Net bad loans %: 2.22

Capital Adequacy ratio: 11

Return on Assets %: 0.18

 

DHANLAXMI BANK LTD

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Total assets: 146.88 billion rupees ($2.4 billion)

Net bad loans %: 1.60

Capital Adequacy ratio: 8.67

Return on Equity %: -34

Return on Assets %: -1.86

 

DCB BANK LTD

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Total assets: 129.23 billion rupees($2.1 billion)

Net bad loans %: 0.91

Capital Adequacy ratio: 13.71

Return on Equity %: 13

Return on Assets %: 1.31

* Metrics as of March 2014, Capital Adequacy Ratio under Basel III

* Source: Indian Banks' Association, Thomson Reuters

NSE cuts trading fees for select segments

 To make it cheaper for investors to trade on its platform, NSE, the country's largest stock exchange by turnover, on Thursday cut charges for trading on its currency derivatives platform and equity options segment by up to 40%. The bourse also introduced liquidity enhancement schemes, an incentive process for brokers to bring in higher volumes, for these two segments.

Market players pointed out that NSE's decision to cut charges came at a time when BSE, its only competitor and the country's oldest exchange, is gaining market share at a faster clip after it rolled out a new trading technology in the last one year.

Under the revised structure, NSE will charge about Rs 3,000 for every Rs 1 crore worth of premium in the equity options segment, down from Rs 5,000 earlier. In the currency derivatives segment, it will charge Rs 110 per Rs 1 crore worth of trades, NSE circulars showed.

Market sources said the cut in transaction charges on NSE is expected to bring in more participants since at higher charges traders were finding it difficult to recover their costs. "In a business (like broking) where margins are wafer thin, cost levied by an exchange is often the determining factor," said a market analyst. NSE said that the revised charges were being rolled out on a pilot basis.



On a comparative basis, however, even the reduced trading charges on NSE are much higher than BSE's. In the equity options segment, BSE charges Rs 50 per Rs 1 crore of premium. Here again, while NSE charges on both sides of the trade, that is for buying as well as selling, BSE charges are only for the sell side. In the currency derivatives segment, BSE charges Rs 2 per Rs 1 crore worth of trade.

In the past few months, BSE's currency derivatives segment, which was launched just about a year ago, is clocking volumes that are around 50% of NSE's. On Thursday, turnover for this segment on BSE was Rs 4,343 crore, compared to NSE's Rs 7,122 crore.

In the equity options segment, however, NSE remained much ahead of BSE. On Thursday, NSE clocked a turnover of Rs 16,992 crore, compared to BSE's Rs 1,141 crore. BSE's equity derivatives segment, after remaining dormant for several years, is gaining traction since it launched the new technology platform in February this year, sources said.

Sourced from TOI

Sept quarter disappoints for India Inc

Economic indicators may be beginning to look up, but corporate earnings are faltering. The July-September period has been lacklustre for corporate India with sales growing a modest 3.2 per cent over the previous year, and profits from operations expanding by a mere 8 per cent.

In the June quarter, operating profits had grown 23 per cent year-on-year and revenues by10 per cent.

Though companies reported a 29 per cent increase in net profits for the September 2014 quarter, it was thanks largely to a leg-up from ‘other income’ from an asset sale or an investment income. This is almost similar to the 31 per cent net profit increase in the June 2014 quarter.

These numbers are from the 3,347-listed companies which have declared results for the earnings season, excluding banks, financial institutions and oil marketing companies.

Slowing down

Sales growth has steadily lost pace, spiralling down from 11 per cent in the March quarter, to 10 per cent for the June and to 3.2 per cent now. Many core sectors saw a sharp drop, indicating that all is not well with the investment cycle.

For instance, power companies, with their litany of woes, clocked sales growth of 7 per cent in the September quarter, well below the 12-13 per cent in June and March.

Sales growth for steel companies also came in at a low 5 per cent in the September 2014 quarter, as weak prices on abundant supply capped realisations. Bigwigs such as SAIL, Tata Steel, and JSW Steel have all slowed down.

Power equipment and capital goods, telecom, and fertilisers are the other sectors where sales growth is losing steam.

And while raw material costs did fall, it did not materially bolster profits for all.

Costs of inputs such as coal, base metals, and crude oil have been drifting lower, but other cost heads such as staff did the opposite.

The impact of raw material savings on profits may, however, be felt in the coming quarters.

Large versus small

The fall in sales growth was steeper for large companies in the September quarter compared to mid-and-small companies, given the slowdown reported by players such as Bharti Airtel, Tata Motors, SAIL, Tata Steel, NTPC, and Power Grid.

The BSE 100 companies saw sales growing 4.3 per cent in the September quarter over the year ago period, decelerating from the 14 per cent in the June and March quarters. Companies making up the mid-and-small cap indices on the BSE have seen sales growth stagnate at 5-7 per cent in the past three quarters.

But large companies have trumped the smaller ones on profitability, suggesting that they were benefiting from economies of scale in procurement. Their input costs shrank in the September 2014 quarter.

Net profit margins for large companies have held at a reasonable 10 per cent for the past three quarters. These margins for smaller companies, on the other hand, are far below at 2-3 per cent. There were also more loss-making companies in the September quarter than in the previous ones.

Bucking the trend

A few sectors that bucked this trend, reporting improving sales and profit growth, include brokerage companies, auto ancillaries and cement. Brokerages benefited from booming stock trading volumes and auto ancillaries from strong replacement demand besides better commercial vehicles, two-wheeler and car sales.

Index Outlook: Markets raring to go higher

The Sensex and the Nifty moved out of their tight band last week. But only just. While investors should not start exulting yet, it is positive for the short term. Traders can look forward to the Sensex reaching towards the 29,000 peak and the Nifty moving to 8,700.

Central bankers, in their attempts to help their respective economies, continued to inadvertently support stock markets. Global equity markets that were beginning to wilt, got yet another shot in the arm, this time from the Chinese central bank.

Worried about falling industrial production, weak real estate market and dismal third quarter GDP growth, the Chinese central bank reduced interest rate on Friday, the first time in two years.

Mario Draghi contributed his bit to improve market sentiments by announcing that he is determined to do “what he must, to raise inflation and inflation expectations as fast as possible.” This central banker-speak took US benchmarks to record highs on Friday.

The feeble memory of markets is reflected in the ease with which the failing of yet another central banker — the one in Japan —was shrugged aside.

As long as money keeps flowing in, investors aren’t complaining.

The limelight will be on our central banker, Raghuram Rajan, this week as the RBI monetary policy is scheduled in the week after that.

The third quarter GDP data set for release towards the end of the week will, therefore, be of great interest to those obsessed with second-guessing RBI’s next move.

The expiry of the November derivative contracts will also influence the movement of stock prices this week. Nifty put call ratio above one implies that there could be a rally if short-squeeze takes place.

Open interest on the National Stock Exchange is also climbing to uncomfortable levels above ₹240,000 crore.

Action of foreign investors last week was interesting. Their net purchases have shrunk significantly and they have even been net sellers in some sessions.

This shows that global investors are getting restive with the continued sideways move.

Momentum indicators in the daily chart are weak. The price rate of change oscillator in the daily chart is dipping while the moving average convergence divergence oscillator is on the verge of signalling a sell.

Weekly oscillators are moving sideways. The price rate of change oscillator hovers in the neutral region. This implies that the medium-term trend is on the verge of reversing lower.

Sensex (28,334.6)

The Sensex moved sideways with an upward bias last week.

The week ahead: While there hasn’t been a significant breakout, the pattern on the daily chart now resembles a running correction. Traders would do well to take bullish bets and wait for yet another leg of the up-move.

The Sensex could move higher to 28,717 or 29,070 in the near term. Traders can play for these targets with a stop-loss at 27,760.

Supports for the week ahead are at 27,760, 27,430 and 26,845. The short-term view will turn murky only on a close below 27,430.

Medium-term trend: The Sensex is still placed at a critical medium-term resistance zone. Caution is required as long as the index does not make a sharp break above 28,500. If it does so, the next target is at 29,694.

Nifty (8,477.3)

The Nifty too closed on a strong note on Friday.

The week ahead: The movement over the last couple of weeks is increasingly appearing to be a consolidation pattern in an uptrend. Short-term traders can play long with a stop-loss at 8,300.

The index can move higher to 8,598 or 8,749.

Supports next week will be available at 8,200, 8,100 and 8,000. Wait for a close below 8,200 before reversing your short-term view.

Medium-term trend: We had mentioned the resistance in the zone of 8,400 and 8,450 in our last column.

The Nifty has managed to move above the upper band of this range, but the breakout is not emphatic.

If the index manages to hold above 8,450 this week, it can attempt to move on to 8,892.

Global cues

Global indices moved higher last week, reversing their short-term downtrends. The strong rally on Friday helped the US and European indices close with strong gains. Volatility also declined last week with the CBOE volatility index declining close to 12.

The chart pattern in the Dow Jones Industrial Average indicates bullish momentum. There is a running correction forming over the last three weeks.

Break from this correction can take the index higher to 18,550 or 19,139. The short-term view will stay positive as long as the index trades above 17,350.

The Nikkei was volatile but managed to close at the upper end of its current trading band at 17,350.

The strength in the dollar index is a negative for riskier asset classes such as equity in emerging markets.

Global markets got a new lease of life, thanks to the Chinese central bank and the ECB

Source: BusinessLine 

Sensex retreats from record highs on profit-taking, FII sales

The BSE Sensex and Nifty fell on Wednesday, retreating from record highs hit earlier in the session as investors pared positions in blue-chips such as Tata Motors after overseas investors marked their first sale of cash shares in three weeks.

Foreign institutional investors sold Indian shares worth 1.02 billion rupees ($16.5 million) on Tuesday, marking their first sale since Oct. 28.

Overseas investors have been key drivers of the stock market rally this year, buying a net $15.47 billion worth of shares so far in 2014, according to regulatory data.

But caution is now beginning to set in ahead of the winter session of the parliament scheduled to begin next week, when Prime Minister Narendra Modi's government is expected to push a slew of reforms including goods and services tax.

Investors are also looking forward to the Reserve Bank of India's policy review on Dec. 2, while also tracking global factors, including minutes of the U.S. Fed's policy meeting due later this week.

"FIIs are making good profit on Indian shares after a long time, so expect 3-5 percent correction by December-end due to profit taking," said G. Chokkalingam, founder of Equinomics, a research and fund advisory firm.

The BSE Sensex fell 0.46 percent after hitting an all-time high of 28,294.01 earlier in the day.

The Nifty settled down 0.52 percent after rising to a record high of 8,455.65.

Blue-chips led falls amid profit-taking. The 50-share Nifty has gained 35.2 percent so far this year, making India the best performing equity market in Asia during the period.

India readies new steps to curb surge in gold imports - source

India is likely to announce new measures to curb gold imports as early as Tuesday, a senior finance ministry source said, and they could include restrictions on a group of private trading firms that have been allowed to bring in the precious metal.

Shipments to the world's second-largest gold buyer jumped fourfold in October from a year earlier to $4.18 billion, raising concern about India's fragile balance of payments.

"We are working on it. The measures to slow gold imports are almost ready and may be announced today or tomorrow," said the source, who declined to be named because of the sensitivity of the matter.

Officials from the finance ministry and Reserve Bank of India (RBI) were considering whether to reimpose import restrictions on "star trading houses" that were eased earlier this year, the source said.

The source did not elaborate but said any announcement could be made by the RBI. A meeting between officials from the finance ministry and RBI last Thursday failed to reach any decisions.

The RBI restricted gold imports in early 2013 as India battled a balance of payments crisis triggered by the U.S. Federal Reserve's announcement that it would start to ease its programme of quantitative easing.

In addition to imposing a record high duty of 10 percent on overseas purchases of gold, the RBI introduced a rule making it mandatory to re-export a fifth of all bullion imports.

The embargo helped compress India's current account deficit, which fell to 1.7 percent of gross domestic product in the quarter to June, down two-thirds from a year earlier.

However, it also led to a surge in gold smuggling, which the authorities tried to counter in May by allowing so-called "star trading houses" - private jewellery exporters that had been barred from importing gold - to resume imports.

Although India's trade deficit has been kept in check lately by a sharp drop in the cost of oil imports, analysts warn that is unlikely to last if inbound gold shipments continue to surge.

They also say that emerging economies with structural external deficits remain vulnerable to any increase in U.S. interest rates. Economists on Wall Street now expect the Fed to raise rates around the middle of 2015.

Index outlook: Sensex to track global cues in absence of major local factors

Benchmark indices continued their nervous jig at higher levels last week two. We have had two consecutive weeks of indecisive market movement.

The Sensex is stuck in a 500-point band between 27,700 and 28,100 and the Nifty between 8,300 and 8,400.

The intra-day movement has also been exasperating over the last eight sessions. The indices have been opening slightly higher and then slumping by mid-day to close marginally in the green or the red.

This shows that buyers are unwilling to buy at higher levels but are buying in declines, thus preventing a sharper decline.

It is to be seen who blinks first; the bulls or the bears. The slightest inkling of a possible interest rate cut can push prices higher from these levels.

Else, gravity will take its toll and drag prices lower. Traders can continue playing long since the trends along all time frames — short, medium and long — continue to be up.

There wasn’t much happening in the domestic market last week barring earnings announcements.

Economic data was cheerful; the consumer price inflation and the wholesale price inflation moved to multi-month lows and the industrial production number for September was also better than the previous month. But the RBI’s reiteration that it is not ready to lower rate is keeping optimism in check.

Crude dredging new lows is another positive, though the hike in excise duty on petrol and diesel wasn’t too well-received.

On the global front, US markets are also as edgy with benchmarks at record highs and stretched valuations.

Foreign investors have been buying heavily in both equity and debt. They have net purchased stocks worth $1.5 billion and debt of $2.3 billion so far in November.

Their tally for this year in equity and debt has risen to $38.5 billion. This buying support appears to be keeping stock prices afloat.

Volumes in cash market were high last week while derivative volumes were lacklustre.

This implies that while smaller investors are active in the market, the more seasoned ones are going slow with their trading.

Open interest in the derivative segment of the NSE is quite high at ₹225,000 crore. Put call ratio close to one shows that the bulls and bears are equally divided at this point.

Momentum indicators in the daily chart of the Sensex and the Nifty are moving sideways in line with the short-term trend in the indices.

The weekly momentum indicators are however moving higher after testing the neutral region. This denotes a more positive medium-term view.

Sensex (28,046.6)

The Sensex continued trudging sideways last week. There is therefore no change in the short- or medium-term view in the index.

The week ahead: The prolonged sideways move has got to snap soon. Since the short-, medium- and long-term trends continue to be up, it is best to stay bullish, unless there are clear signs of a reversal.

As explained last week, the index has strong resistance around 28,000. The index is still struggling to get past this level. A strong break above 28,100 can take the Sensex to 28,353 or 28,527.

Key support for the index now is at 27,000. This occurs at 38.2 per cent retracement of the previous up-move and the 50-day moving average is also poised here. Break of this support will take the index to 26,632 and 26,326.

Medium-term trend: The medium-term trend in the index stays positive. But the index has strong resistance in the zone between 28,000 and 28,500.

We need to see a sharp move above this zone to confirm a sustainable break-out.

Medium term target on a break above 28,500 is 29,694. Key medium-term supports are at 25,000 and 24,500.

Nifty (8,389.9)

The Nifty too moved sideways and closed with minor gains last week.

The week ahead: The index has been trudging sideways over the last eight trading sessions. Since this sideways move follows an up-move from the low at 7,732, it is best to bet on the long side. These are the guide-posts for next week.

Nifty can move higher to 8,493 or 8,585 and lose steam from there. Short-term investors can hold their long positions with stop at 8,280 and wait for the index to hit these targets.

Short-term supports are at 8,157, 8,065 and 7,990. Short-term view will reverse only on a close below 7,990.

If there is an extremely sharp up-move next week that takes the index above 8,585, the next target is 8,734.

Medium-term trend: The medium-term view for the Nifty stays positive. We maintain the medium-term target above 8,450 at 8,892. Key medium-term support stays at 7,300.

Global cues

Global markets took another step lower last week. Nervousness regarding the state of the global economy continued to weigh on global investors. The US markets however managed to continue trading at higher levels. The CBOE volatility index moved further lower to 12.3, as the level of complacency among these investors grew.

The Dow hit a fresh life-time high at 17,705 before ending the week 61 points higher. The medium-term target for the index continues at 18,486.

Previous peak of 17,350 is the immediate support for the index. The area around 17,000 will however be a key psychological support.

The Nikkei gained another 3.6 per cent last week. It seems to be on course to reach the 2007 peak of 18,269.

Indices are moving in a narrow band. 

A sharp break-out is now inevitable

Source: BusinessLine 

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BSE Sensex to largely track global events for direction.

Japanese growth data on Monday to provide direction early on.

Caution to prevail in domestic markets ahead of RBI policy review on Dec. 2.

Bonds may continue to retreat after touching more than 15-month highs on Nov. 13.

Continued fall in global crude prices to support sentiment for debt.

10-year bond seen in an 8.15 to 8.35 percent range next week.

Rupee seen in a 61.50 to 62.00 range early next week and a broad 61.20 to 62.20 band next week.

Nifty seen holding between 8,300 and 8,500 range for the week.

With July-September earnings reporting season almost over, stock investors would focus on foreign flows.

Government hikes excise duty on diesel and petrol

India expects to raise around 60 billion rupees ($975 million) from a hike in excise duties on petrol and diesel and the money will partly cover a shortfall in revenue collection so far this fiscal year, a finance ministry source said on Thursday.

Earlier, the government has raised excise duty by 1.50 rupees a litre each for the two fuels.

"Excise duty on petrol and diesel has been hiked to partly cover shortfall in tax collections," a senior finance ministry official told Reuters on condition of anonymity as he is not authorised to speak to the media.

(1 US dollar = 61.5500 rupee)

Industrial output growth picks up in Sept to 2.5 pct y/y

 India's economic outlook brightened on Wednesday with a surprise pickup in industrial output and further cooling in consumer prices, data showed, boosting Prime Minister Narendra Modi's bid to end the longest slowdown in growth in decades.

Retail inflation, which the Reserve Bank of India (RBI) tracks in setting lending rates, slowed to 5.52 percent in October from a multi-year low of 6.46 percent a month earlier, helped by slower annual rises in food and fuel prices.

Industrial output unexpectedly grew 2.5 percent year on year in September, its fastest pace in three months, helped by a rebound in the capital goods sector, separate government data showed.

Wednesday's data is expected to bolster the outlook for Asia's third-largest economy which is recovering weakly from a two-year spell of sub-5 percent growth.

Economic growth hit a 2-1/2 year-high of 5.7 percent in the quarter to June, prompting some economists to predict 6 percent growth for the fiscal year to March 2015, higher than 5.5 percent projected by the central bank.

But lacklustre industrial production since then has led some to trim their more optimistic projections.

Cooling prices will intensify pressure on the RBI to cut interest rates to stimulate consumer demand which powers 60 percent of the economy.

"A rate cut at this juncture will no doubt add to the existing positive growth impulses," said Prithviraj Srinivas, an economist with HSBC.

"But such a move would also increase the risk that the RBI misses its inflation target ... to return inflation back to the level last seen in the period between 1999 and 2005, when CPI inflation averaged just 4 percent."

Worries that price pressures would revive once food prices pick up due to a weak monsoon and the fading of base effects led the RBI to leave one of Asia's highest lending rates on hold for a fourth straight meeting in September.

It is widely expected to maintain the status quo when it reviews monetary policy on Dec. 2.

Slowing inflation, however, has bolstered hopes for a rate cut next year, triggering a rally in the bonds market.

Retail inflation cools further to 5.52 percent in October

India's annual consumer price inflation eased for a third straight month in October to 5.52 percent, its lowest level since the government started releasing the data in 2012, data showed on Wednesday.

The latest number was lower than a Reuters poll forecast of 5.80 percent and September's 6.46 percent print.

Consumer food price inflation, under a new series published by the government, eased to 5.59 percent last month from 7.67 percent in September.

India's slowing profits growth offers wake-up call for record-high shares

 Indian corporate earnings are growing at the weakest pace in nearly six years, in a more sober reflection of the economy than a stock market hovering near record highs since the May election of pro-business Prime Minister, Narendra Modi.

The new premier, previously known for economy-stimulating infrastructure projects on a state level, has been widely touted as the man to revive an economy lumbering through the longest spell of below-5 percent growth in a quarter of a century.

Such is investor sentiment surrounding Modi's premiership that the Nifty has risen by a third this year, touching a lifetime high on Wednesday.

But weakening corporate earnings growth highlight the continued need of Asia's third-largest economy for increased investment, lower interest rates and a slower rate of inflation, company executives said.

"We did assume at the beginning of the year that domestic conditions would improve post elections," said R. Shankar Raman, chief financial officer of conglomerate Larsen & Toubro Ltd.

"It has, sentiment has improved, but the ground reality is still to change. I do think it will take a good six months for it (to) completely kick in. Hence, I want to be circumspect."

The median net profit growth of 102 Indian companies which have reported July-September earnings was 7.7 percent, the lowest since October-December 2008, according to Thomson Reuters StarMine data on companies tracked by at least one brokerage.

Median revenue growth at those companies - including cement maker ACC Ltd, financial services provider IDFC Ltd and mobile phone network operator Bharti Airtel Ltd - was 10.5 percent, the lowest in nearly five years.

Revenue growth is likely to slow even more in October-December to 10 percent, but will pick up to 12.5 percent in January-March in line with a general expectation for quicker economic growth and a reduction in central bank interest rates.

Even so, the country's biggest carmaker, Maruti Suzuki India Ltd, last month said its auto sales growth would slow in the second half of the fiscal year ending March 31, cooling hope of an industry rebound after two years of declining sales.

"The situation of course is not as bright as many people hoped it would be at this point. We do not expect the growth in sales of Maruti will be as high a percentage (as) in the first half and this will slow down," said its chairman, R.C. Bhargava.

The downbeat outlook puts pressure on Modi to deliver on election promises to take "decisive action" to facilitate investment in power generation, roads and rail, to stimulate economic growth.

"We need some fundamental changes on the ground," said the CFO of a large Indian conglomerate who declined to be identified when expressing views on the government. "Up to now, there are many statements of intent, but there is no real investment."

Index outlook: Like a cat on a hot tin roof

The Sensex and the Nifty wavered in a narrow band last week. While there was a ripple of excitement when the Sensex crossed the 28,000 milestone, market movement last week largely signals ambivalence. Investors should brace themselves for a sharp move in either direction.

With the hiatus in the blue-chip rally, trading interest shifted to small and mid-cap stocks.

The silver lining for the market at the current juncture is the decline in crude prices. With the government making the most of this opportunity by de-regulating diesel prices, fiscal deficit numbers are going to improve. The current account deficit and inflation will also look better due to the lower price of imported crude oil.

The focus is also shifting to the RBI monetary policy scheduled for early December. The call to bring down policy rates is growing louder as inflation continues on its downward path.

The industrial production numbers for September and consumer price inflation for October, slated for release this week, will therefore be of great interest. Further slowdown in growth will apply pressure on the central bank to bring down rates sooner. Global market also appeared to have lost steam.

Many benchmarks reversed sharply lower last week, with growing concerns on slowing Europe and China.

Interestingly, the US market appears to be on a different trip. The Dow and the S&P 500 recorded fresh lifetime highs.

Rather tepid growth in employment numbers in the US has assuaged market fears about the Federal Reserve speeding towards normalcy and higher rates. Reassurance from the ECB and the Fed chair — that the unconventional monetary policy stance will remain if economies continue to falter — also made investors happier.

Foreign portfolio investors are still buying in Indian markets. Volumes in the cash segment picked up towards the weekend while derivative volumes were lacklustre. Open interest on the NSE’s derivative segment is above ₹200,000 crore, reflecting elevated trading interest.

Momentum indicators in the daily chart of the Sensex continue to stay perky. But the slowdown in the weekly indicators is a point of concern.

These indicators are sloping lower since last July. The negative divergence means the rally could halt and a medium-term correction could be around the corner.

Sensex (27,868.6)

The Sensex moved sideways with three small-bodied formations last week. This indicates a pause in the up-trend.

The week ahead: The outlook has not changed much since last week. The index has immediate target at 28,032. There is likely to be a heavy resistance around the 28,000 level. If it is crossed, the Sensex can head to 28,353 or 28,527. The rally could terminate at either of these levels if there is a short-term spurt early next week.

Supports that need to be watched are at 27,354 and 27,000 and 26,806 (50-day moving average)

Medium-term trend: As mentioned last week, the index is near critical medium resistance zone. The movement over the next couple of weeks will help us determine the medium-term trend in the index.

Medium-term target on a sharp break above 28,500 is 29,694. We retain the key medium-term supports at 25,000 and 24,500.

Nifty (8,337.00)

The Nifty closed with a doji formation on the weekly chart. This can either be a consolidation in an uptrend or the end of the rally from October 17.

The week ahead: In other words, the index can move in either direction in the short term. If the index moves past 8,400, it can rise to 8,437 or 8,529. Critical support that traders need to look out for is at 8,180. Close below this level will imply that the short-term trend is under threat. Next supports are at 8,128 and 8,013.

Medium-term trend: There is no alteration in our medium-term view. There is resistance in the zone between 8,400 and 8,450. If the Nifty manages to move past 8,450, it can then move to 8,892.

Key medium-term support stays at 7,300.

Global cues

The short-term rally that started in mid-October halted last week. US investors, however, continued to be gung-ho.

The CBOE volatility index declined further to close at 13.1 last week, implying continued complacence among US investors.

The Dow Jones Industrial Average rose to a new record high and closed 183 points higher. We retain the immediate target for the Dow at 18,486. But investors need to watch out for the support at 17,000. The index needs to close below this level in order to signal a reversal in the short-term trend.

Most Asian indices, such as the Jakarta Composite, KLSE Composite and the Hang Seng, closed sharply lower last week, signalling the end of the short-term trend that began in October.

The dollar index continued its spectacular surge last week, rising to a four-year high.

As mentioned earlier, the index has strong resistance in the 89-90 band. If this region is breached, the next resistance is at 92.

The Sensex and the Nifty moved in a narrow range last week. Investors appear edgy with the indices hitting record highs.

Source: BusinessLine

Markets Weekahead - Inflation data, cabinet changes key for markets

* Consumer price index data due on Wednesday will be key for markets.

* A sharp fall would raise hopes for an RBI rate cut at its Dec. 2 policy review.

* The government is also expected to announce a cabinet reshuffle by Sunday.

* Markets will also react to U.S. jobs data, due later in the day.

* Share markets to continue tracking earnings, including from Tata Steel.

* Both NSE and BSE indexes touched record highs on Nov. 5.

* The 10-year benchmark bond yield seen in 8.15-8.25 range after touching a 15-month low.

* Rupee seen trading between 61.40 and 62/dollar

* RBI expected to intervene to prevent excessive depreciation.

KEY FACTORS/EVENTS TO WATCH

No Fixed Date: October Imports/ Exports/ Trade Deficit

Tuesday: Power Grid Corp of India earnings

Wednesday: Oct Consumer Price Index

September Industrial Output

Earnings - Tata Steel, Aditya Birla Nuvo, Adani Enterprises

Thursday: Earnings - Cipla Ltd, DLF Ltd, Hindalco Industries, Indian Oil Corp

Friday: Oct Wholesale Price Index

Loan Growth

Weekly FX reserves

First time in 2014: FIIs turn net sellers In October

Following the US Federal Reserve’s move to end its quantitative easing programme and amid weak corporate results, foreign institutional investors (FIIs) significantly reduced fund inflow in Indian equities in October. Net inflow turned negative for the first time in 2014 in October as they pulled out a net of Rs 1,171 crore in the month.

* While FIIs remained net sellers for a large part of the month, Bank of Japan’s announcement to accelerate bond buying programme led to a rise in inflow into Indian equities in the last couple of days in October

* The net inflow into Indian equities for the year stood at Rs 82,264 crore at the end of the month

* Debt inflow in October, however, stood strong at Rs 17,903 crore taking the net inflow for the calendar year to a record of Rs 1,36,243 crore as the money kept flowing due to high interest rates in the country

* Aggregate of debt and equity inflows crossed $36 billion (Rs 2,18,506 crore) in 2014 — an all-time high

SUMMARY: The net inflow into Indian equities for the year stood at Rs 82,264 crore at the end of the month.

Index outlook: On a wing and a prayer

The Sensex and the Nifty took wing on Friday and managed to close well above their previous peak. With another holiday-splattered week ahead, trading can be subdued with investors looking at overseas markets for cues.

Friday’s close was extremely upbeat, but it is to be seen if investors are able to keep their optimism high at those pumped-up levels. The first two sessions are therefore critical for determining the near-term outlook.

Traders can stay bullish as long as the Sensex holds above the previous peak of 27,354 and the Nifty above 8,180. Close below these levels will mean that Friday’s rally was a mere flash in the pan.

It was a news-heavy week with both the Federal Reserve and Bank of Japan doing their bit to influence stock prices.

The expiry of the October derivative contracts helped stock prices in Indian markets move higher in the early part of the week.

The shenanigans of the government over the black money stashed abroad by various eminent citizens of the country also kept investors riveted.

But action in global markets over the past month shows that investors are beginning to clutch at straws. This implies that the rally that stretched from 2012 could be nearing its final phase.

Between the third week of September and mid-October this year, most benchmarks sold off sharply on concerns that the US quantitative easing programme would end and the rate hike in the US is imminent.

These losses were wiped off because James Bullard, President of the Federal Reserve Bank of St Louis, expressed an opinion that the US was not ready for the end of quantitative easing.

On Friday, global markets spurted on Japan’s increased stimulus, while there was no reaction to the Fed’s hawkish statement after the FOMC meeting.

While momentum can carry stock prices higher from these levels, it would be best to be on guard. Wait for a sizeable correction before making fresh purchases.

The monthly charts of the Sensex and the Nifty throw up some interesting points.

The doji formation in September, that appeared to be a market peak, has been followed by another bullish candle.

This implies that the rally is far from over and the market will move higher from these levels before letting up.

The momentum indicators in the monthly chart are also continuing to power higher.

Sensex (27,865.8)The Sensex has closed on a gung-ho note on Friday.

The week ahead: But tread a little cautiously on Monday. That trading session will determine the short-term trend in the index.

If the Sensex continues moving higher and closes on a strong note on Monday, upward targets are 28,032 and then 29,343.

But if the index reverses lower on Monday and closes below 27,000, fresh long positions ought to be avoided. Supports for the index are at 26,880 and 26,230. Short-term trend will reverse lower only on a close below 26,000.

Medium-term trend: It needs to be seen if the Sensex is able to move above 28,000 next week. Inability to do so will mean that the index can consolidate with a positive bias for few months.

If the index manages to power past 28,000, the next medium term target is 29,694.

We retain the key medium-term supports at 25,000 and 24,500.

Nifty (8,322.2) The Nifty too managed an upbeat close on Friday.

The week ahead: The performance of the index on Monday is critical to determining the short-term trend.

If the index manages a strong close on Monday, the short-term targets for the index would be 8,344 and then 8,728.

Conversely, if the index loses steam on Monday morning and goes on to close below 8,180, it will mean that the index is heading towards 7,723 and 7,540.

Medium term trend: We need to see the action of the Nifty for two more sessions before we can determine if the medium-term uptrend has resumed.

If we assume that the final leg of the move from 5,118 is in progress, the index then has the targets of 8,445 and 8,892.

Key medium-term support stays at 7,300.

Global cues Global indices recovered strongly in the later part of the week. This helped some indices rise to new life-time peaks and others reverse from their near-term declines.

CBOE Volatility index that rose to 31 in mid-October has once again declined to 14. This shows that investor confidence is once more in an elevated state.

The Dow recorded a new closing high of 17,390. A reversal from here can pull it lower to 16,800 or 16,450 in the upcoming sessions. The short-term view will be threatened only on a close below 16,450.

On the other hand, target on a rally above 17,500 is 18,486.

The rally in the dollar index last week that took it to a multi-year high implies that the index can now head towards the next peak at the level of 89. This rally does not bode well for riskier asset classes including emerging market equities.

Market action is getting irrational. Wait for a correction before making fresh purchases