Saturday, 31 August 2013

Weekly Market Update - 26 Aug to 30 Aug 2013

If anybody was curious about the potential that the markets have for swings, then last week would have been an eye-opener. The Sensex and Nifty touched deep lows and had steep pull-backs aided by the wildly swinging INR in the fall as well as the rise.

The highlights of the week were:

  • The Food Security Bill was passed by the Govt.
  • Sensex hits a 590pt low in single day and ends the week with a steep rise of 218pts.
  • Rupee touches life-low of 68.80/$ before recovering to 66.55/$.
  • CCI clears a total of 36 stalled infra projects in various sectors.
  • GDP growth at 4.4%. Slowest in 4 yrs.

Early in the week the Govt. cleared its ambitious Food Security Bill in Parliament. The markets reacted with the Sensex dropping 590pts in a single day as there was widespread worry that this may prove to be very costly with the cost adding to the already huge fiscal deficit numbers. The Finance Minister’s assurances that the fiscal deficit and CAD targets will be unaffected by the Food Security Bill, failed to lift the mood.

The rupee too reacted wildly partly due to the concerns over the Food Security Bill, but also on the back of FIIs pulling out funds and the Syria situation panning out. The rupee touched a lifetime low of 68.80/$ owing to these fears.

With analysts and experts from all quarters voicing their opinions that the rupee has fallen below its fair value, the RBI announced a forex swap window for state-owned Oil Marketing Companies, under which the RBI will lend dollars to the OMCs for equivalent number of rupees with the arrangement that the OMCs will return the dollars over a period of time. This, understandably was an effective step to curb the volatility in the forex markets by keeping the OMCs out of the play. The forex markets were quick to take the cue and the rupee recovered to 66.55/$  registering the biggest single day gain.

On the equity side, the assurances by the PM that the reformative steps will not be stopped and there will be no going back to capital control regime, lifted the markets and the the Sensex rose 218pts only in the last hour of trading before closing for the week.

Later the GDP numbers were out showing that at 4.4% the GDP growth was slowest in 4yrs. The fiscal deficit also stood at 62.8% of the target for the full year. How these parameters are going to affect the markets on Monday remains to be seen. With the Govt. seemingly in full gear and the coming week being the last week of this session of the Parliament, the political and the economic situation may be in for some more volatility.