The highlights of the past week are as follows :
- October trade deficit widens on MoM basis.
- IIP and CPI data released. High CPI a worry.
- October WPI inflation at 8-month high. Stands at 7%
- Markets end the week on a positive note after assurances by RBI governor.
The markets started the week in red on the back of weakening rupee due to dollar demands of OMCs being diverted to markets partially and fears of early start of QE tapering by the US. The fall continued even after the trade data was released. The trade data for October showed a 13.5% increase in exports but the trade deficit widened to $10.56bn from $6.7bn MoM. On a YoY basis the trade deficit has reduced almost by half.
The September IIP which stood at 2% was below the expectations of the market and the October CPI shocked everybody with a double digit figure of 10.09% which was largely due to the higher vegetable prices. Both these numbers again led to dismal mood in the market as the fall continued into the 7th day.
At an urgent press meet RBI governor sought to dispel the fears on rupee volatility and stressed on the fact that we are better prepared this time over for any dollar outflows due to QE taper, this time over. The governor also said that the partial dollar demands of OMCs had been entering the markets as far back as mid-October but the rupee weakening on this account started only last week after the fact was divulged by the Finance Ministry. By saying this, the governor in-effect said that the rupee weakening is due to the panic mentality more than that of any actual volatility in currency. He also said that the dollar demands of OMCs will be diverted to markets in a smooth manner and there is no set date on which the swap window will be closed. Also, he divulged that the RBI will inject Rs.8000Cr via Open Market Operations (OMOs) on Monday to ease the liquidity situation.
Largely because of the assurance given by the RBI governor and also because of the new Fed chairman nominee Janet Yellen saying that the US economic data needs to improve more before any QE taper can be initiated, saw the markets on a positive note the next day. The sensex surged to over 350pts intraday before paring the gains somewhat due to the high WPI figures and closed the day with an upside of 205pts.
We can expect some more positivity to continue next week too but the markets may also surprise us with a more muted performance with positive bias as the earnings season has ended and the volatility too will subside.
