Stock Market Update

Market Volatility to Continue This Week

Continuing on the trend last week, expect a volatile week this time around too due to expiry of derivatives contracts on Thursday. Investors will also be watching for global cues and the developments in the PNB fraud case. The last few weeks of correction in Indian markets has resulted in massive losses, especially for retail investors who were chasing momentum in mid and small-caps. There seems to be a pattern of distribution where frontline indices are holding steady within a band while the mid and small-caps continue to correct heavily. However, this should provide a good opportunity for an entry in the near future.

Last week saw Nifty trading in a range between 10,450 and 10,600, and the Bank Nifty index being dragged down by the Rs 11,000 crore Punjab National Bank fraud case. The rupee ended at 64.21 against the dollar, compared to 64.39 last week. FIIs were net sellers to the tune of 28.5 billion rupees ($44 million) while DIIs were net buyers to the tune of 23.7 billion rupees.

The highlight of the week was the bank fraud case involving jeweller Nirav Modi. The case may have a wider impact on the banking sector given the possibility that other jewellers could have exploited the letter of credit and bank guarantee facilities to fund their business operations. A pertinent point to note here is that the quantum of fraud is so huge that the likely recapitalisation amount that PNB is supposed to receive (54.7 billion rupees) from the government may be completely wiped off.

On the macro front, CPI inflation for January eased to 5.07 per cent, compared to a 17-month high of 5.21 per cent in December. Factory ouput continued to record strong growth for a second straight month at 7.1 per cent in December. IIP growth is expected to trend higher in January as commercial vehicle sales have expanded by 36.6 per cent. The positive contribution of cement, diesel and even two wheelers augurs well for growth recovery, especially for the rural economy.

Merchandise exports increased 9.1 per cent to $24.38 billion in January compared to a year ago, while imports surged 26 per cent to $40.68 billion. Trade deficit jumped 64.6 per cent to $16.30 billion in January.

With the results season almost over, all the focus will continue to remain on the global cues. Last week, the Dow Jones increased by 4.5 per cent and recovered 50 per cent of its recent losses. Hence, once the domestic concerns settle, Indian indices are likely to take part in global rally.

Posted by Digamber