Euphoric Start & A Tame End

The markets started off on a jubilant note on Monday, December 9, 2013, in the wake of the state Assembly election results. However, they were not able to hold that momentum and in the course of the week, erased all the gains seen at the beginning. During the week, both Sensex and Nifty ended with a loss of 2.86% and 3.07% respectively. Let us take a review of the events that affected the market’s moves.

Fears of tapering of Quantitative Easing in the US have once again dragged the markets down. Not only on the domestic front, but on the global front too, investors were worried about the rollback of the stimulus package. This is likely to spark off an outflow from the emerging markets, including India. The picture is expected to get much clearer by next week, as the US Federal Reserve meets on December 18. The tapering buzz got louder after encouraging data from the US, which marked an improvement in retail sales.

Coming to the domestic front, the CPI and IIP data which came out yesterday was also not encouraging. CPI for the month of November 2013 came in at 11.24% as against the street’s expectation of 10%. Industrial production also contracted in October to come in at -1.8%. This has stirred concerns on a rate hike by the RBI when it meets on the 18th of this month. The markets have already started to discount this possibility, and heavy selling was seen in the interest rate-sensitive stocks in Friday’s (December 13) session.

The contraction in IIP followed a dismal performance by core infrastructure sectors such as mining and electricity. Mining output fell by 3.5% and growth in electricity production decelerated sharply to as little as 1.3% in October from 12.9% in the previous month. Manufacturing output too fell by 2% over infrastructure and input constraints and a sharp moderation in demand.

However, FII inflows remained strong during the week, as they pumped in Rs 5793 crore, taking the total to Rs 103722 crore of net inflows on a YTD basis. DIIs remained on the sidelines this week too, selling and equities worth Rs 233 crore. Year till date, they have sold equities worth Rs 21400 crore.

The markets will be waiting with bated breath for the next two big events, i.e. the meeting of the US Federal Reserve and the RBI’s monetary policy announcement. The WPI data is also slated to be released on Monday, December 16. Until these numbers are declared, the markets are likely to be in a consolidation phase and volatility cannot be ruled out.