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Equity Markets Weekly Wrap.

Equity Trading

Equity Markets Weekly Wrap.

The 30-share BSE Sensex fell 320 points or 1.9% to close at 16831, and the 50-share Nifty closed at 5086, down 101 points. After trading for several weeks within the 5135-5379 levels, the Nifty broke down from this range on Friday. It was the second consecutive week of losses as the Nifty lost 2.34% W-o-W. Apart from fears of the double taxation avoidance treaty (DTAA), bears were spurred on by the Indian Rupee’s sharp depreciation as well. The widening trade deficit and policy paralysis have anyways kept markets in the bearish zone. Reflecting the negative sentiments in the market, market breadth was negative in three out of the four trading sessions of the week. Indian Equity Markets are seen trading at their lowest levels in over three months as continuing concerns over the depreciating rupee and the likely wording of the General Anti-Avoidance Rule in the Finance Bill, triggered a sell-off. Weakness in European markets further aggravated the weakness in the main indices.

U.S. stocks declined a third day, sending the S&P’s 500 Index toward its worst week in 2012, as data showing employers added fewer jobs than forecast intensified concern about the pace of economic recovery. The S&P 500 has retreated 1.5% to 1,371.32 by now, extending its weekly decline to 2.3%.

The HSBC purchasing managers’ index (PMI) for services in India recorded a marginal rise from 52.3 points in March to 52.8 points in April, signaling a below-trend rate of expansion of services output. As growth in manufacturing output declined for the third month in April, the HSBC Composite Output Index for April (covering manufacturing and services) remained unchanged at 53.8 points. Services and manufacturing account for the majority of India’s gross domestic product (GDP). The core sector’s two% growth in March had already indicated official industrial growth figures for the month would also be tamed. However, new businesses in services were strong, though growing at a slower pace than in January and February.

HSBC India manufacturing PMI posted 54.9 in April, little changed from 54.7 in March and signaling a solid improvement in operating conditions. A combination of improved client demand and good quality products led to a further increase in new business at Indian manufacturers during April. Moreover, the rate of expansion was considerable, and faster than in March. Growth in new export orders also quickened during the month, and was marked. India’s exports fell an annual 5.7% to $28.7 billion in March, while imports rose 24.3% to $42.6 billion. Sugar production has risen 11% to 25.1 million tonnes during October-April, 2011-12, driven by higher output in Uttar Pradesh.

The country’s current account deficit (CAD) is likely to remain under pressure this financial year, too, as merchandise exports are not expected to match the 21% growth seen in 2011-12. Even so, the deficit may come down a bit as a percentage of GDP this financial year compared to the last one. Imports, too, may not witness the 32.15% growth registered in 2011-12 and improvement in the conditions in theUnited States might lead to services exports doing better. Besides, strong Gulf economies may continue to result in robust remittances from overseas Indians. The CAD may fall anywhere between 3 and 3.6% of the GDP in 2012-13, against 3.5-4% expected for the last financial year.

The RBI – Reserve Bank ofIndia’s guidelines on Basel-III capital regulations are unlikely to make domestic lenders scramble for funds, at least in the near term. The new norms mandate Indian banks need to maintain a minimum capital adequacy ratio (CAR) of nine%, in addition to a capital conservation buffer, which will be in the form of common equity at 2.5% of the risk weighted assets. In other words, banks’ minimum CAR must be 11.5%. Indian banks are currently required to have CAR of at least 9%. Indian banks have to migrate fully to RBI’s version ofBasel III by March 31, 2018, whereas globally the deadline is January 1, 2019.

The oil ministry served a notice to Reliance Industries, disallowing 1.45 billion dollars of cost recovery from the eastern offshore KG-D6 fields for failing to meet its drilling commitment. According to reports, the government has asked the oil major to pay around Rs 6600 crore for the sharp fall in gas output from its KG-D6 block.

The INR continues to be a concern for the economy, and the effect was clearly seen as exports for the month of March contracted for the first time since 2009. Demand from oil importers pushed the rupee to a new four month low of 53.80 to the dollar today, but RBI intervention helped a rebound to end the day at 53.47 as expected. Fears are that a weak rupee might prompt foreign investors to withdraw cut exposure to Indian equities at a time when their portfolio is already underperforming. A depreciating rupee will further reduce the value of the portfolio. It is widely believed that the RBI may not support the rupee this time, given the already worsening current account deficit situation.

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