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

Sensex surges 500 points on BOJ easing

The BSE Sensex and Nifty surged nearly 2 percent on Friday to record highs for the second consecutive day after Bank of Japan's surprise expansion of its massive stimulus programme raised hopes for additional foreign inflows, boosting blue-chips.

In a rare split decision, the BoJ's board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($725 billion), up by 30 trillion yen.

BoJ's easing is being seen as an alternative to the U.S. Federal Reserve's just concluded bond-buying programme, supporting the rally in emerging markets such as India, already underpinned by reforms and hopes of a rate cut.

"BOJ's easing would further the argument of central bankers other then Fed providing stimulus to support economies and assets," said U.R. Bhat, managing director at Dalton Capital, a unit of U.K.-based investment management firm Dalton Strategic Partnership LLP that manages nearly $2 billion in assets.

"I agree there are strong expectations of a rate cut. But there is no tax on expectations. Is it?"

Foreign portfolio investors have bought shares worth $13.45 billion and $22.44 billion in debt in Asia's third-largest economy so far this year.

India ended fuel price controls, raised gas prices, proposed opening up of the coal sector and relaxed rules for foreign investment in construction, earlier in October.

The Sensex rose as much as 2 percent to an all-time high of 27,894.32, before ending up 1.9 percent at 27,865.83.

The Nifty gained as much as 1.98 percent to mark a record high of 8,330.75, and finished 1.87 percent higher at 8,322.20. Both indexes surpassed their previous record highs hit on Thursday.

October also marked an eighth month of gains in nine for the indexes, mainly helped by optimism tied to the election of Narendra Modi as Prime Minister and thereafter by a 24 percent slump in crude oil price since June.

The Nifty rose 4.5 percent, while the Sensex advanced 3.64 percent in October.

Shares also marked their biggest weekly gains since June. The BSE rose 3.8 percent, while NSE gained 3.84 percent.