Friday, 20 September 2013

Weekly Market Update - 16 Sep to 20 Sep 2013

The week started with a muted performance of the market. It was evident from the beginning that everybody was waiting for the twin outcomes of the US FOMC meet and RBI’s mid term monetary policy. As it turned out, both these developments came with unexpected outcomes.
Following are the highlights of the week :

  • US FOMC meet decides no QE tapering for now. Markets relieved and rally in symbolic celebration.
  • RBI’s monetary policy spoils the party. Repo rate increased by 25 basis points and MSF brought down by 75 basis points (markets see this as insufficient reduction of MSF). Markets tank.
  • WPI increases to six month high. marks 6.1% in August from 5.79% in July. CPI reduces marginally to 9.52%
  • Import duty on gold jewellery raised to 15%.

From the start of the week it was evident that everyone was waiting for the FOMC meet and RBI policy review. It was expected that the FOMC will be giving some indications about the tapering of its QE program and winding down of economic stimulus. But Mr. Bernanke surprised the emerging markets pleasantly by saying that the Fed is not going into tapering now as the data doesn’t support such a move yet. This unexpected development predictably had positive effect on the Indian markets as the Sensex surged 684pts to end at a 34 month high. However, analysts warned retail investors to not to get carried away by the rally and assume a wait and watch policy.

The caution was well placed as, on Friday, the RBI came with another surprise for the markets albeit an unpleasant one. The RBI raised the repo rate by 25 basis points which no one expected hence it was a blow of sorts to the ongoing party at the markets. So much so that the 75 basis points reduction in Marginal Standing Facility (MSF) was seen as insufficient and disappointing. Again the markets reacted to this unexpected blow and Sensex tanked 360pts. The Nifty was down by 103pts.

In other developments during the week the govt. raised the import duty on imported gold and silver jewellery to 15%, thus trying to reduce imports and at the same time boost the domestic artisans and jewellery manufacturers.

As the week ended it seems that the effect of the RBI monetary policy has still not trickled down to the market. Hence, the next week may start with some negative notes in the beginning and what happens later will mostly depend on any newer developments that may come. Muted performance may be in for some days now.