Weekly wrap: Key indices halt victory run ahead of FOMC meet

It was the week of broader markets which continued the dash despite the benchmarks stopping for a breather, consolidating at higher levels.

Both Sensex and Nifty eked out marginal gains while CNX mid-cap and BSE small-cap indices surged 3-5 percent in the week ended September 12.

Speed breaker ahead?

Investors were wary of piling big bets ahead of the macroeconomic data slated to be released on Friday post market hours and potential volatility on account of policy setting meet of the US Federal Reserve on September 16-17.

US Fed meeting next week will be crucial for emerging markets which has been swamped with global liquidity created due to easy money policy of central banks around the world. A research paper released earlier by the San Francisco Fed suggested that investors anticipate slower rate hikes than US policymakers. This created a scare in Asian markets and US bond yields spiked during the week.

"What we think could happen in the next FOMC meeting is the Fed may change the wording to really give themselves more flexibility in terms of how quickly they raise interest rates after the end of QE. They have been using the phrase considerable time, to indicate quite a long time after the end of QE before they raise rates. We wonder whether they might change that now because they want to have flexibility and if they do change then the markets would be nervous about that because the markets will perhaps rebuild the possibility that rates will go up soon enough," said Geoffrey Dennis of UBS in an interview to CNBC-TV18.  According to Dennis, the Fed could hike rates in the middle of next year and this could potentially trigger a 5-7 percent correction in emerging markets but does not see a big sell-off if the rate hike is announced.

Jyotivardhan Jaipuria, Head of Research at BofAML echoes the sentiment. Speaking to CNBC-TV18, he said global cues, especially interest rate hike by the US Federal Reserve, continue to be the biggest risk for Indian equities and could spoil the party. He foresees a 5-7 percent correction from the current levels.

But this volatility on account of global cues might be offset by increased confidence from domestic investors in the economic recovery and improving growth. Inflation and slow industrial growth will continue to pose short-term speed bumps though.

Industrial growth drag, inflation in-line

Market may totally ignore this on Monday but this might play a sentiment dampener going ahead. Industrial activity, as measured by the index of industrial production (IIP), slipped to 0.5 percent in the month of July, data released by the government showed, compared to 3.9 percent in the previous month (which was revised higher from 3.4 percent).

Hope persists 

Experts continue to remain bullish citing the liquidity wave that has swept the market. Rahul Arora, CEO, Nirmal Bang Institutional Equities told CNBC-TV18  that the market has started to run a little ahead of fundamentals. In the near-term, he expects Nifty's to touch 8300-8400 levels. He also sounded a note of caution on massive rally in broader markets.

"In the month of August DIIs actually pumped in a very strong buy figure. But I think it is getting a little bit ahead of itself and if you see exactly the point that you mentioned people are now struggling to find ideas, which is why you are seeing the quality of stocks that is going up in mid and small cap indices are actually quite questionable."

Domestic mutual funds turned net buyers of local stocks after 5 months; investing a record Rs 6,957.60 crore in equities in the month of August. 

Market Internals

Cipla, BoB, PNB, SBI, IDFC & Asian Paints, Bharti Airtel & HUL were the top Nifty gainers this week.

GSFC, HOEC, Marksans Pharma, Shalimar Paints, Bharati Shipyard and Alembic spiked 15-36 percent from the mid-cap pocket.

Banking stocks were the best performers from the sectoral indices this week; Bank Nifty and CNX PSU indices swelled 1.8 percent-5.1 percent during the week. SBI, PNB and BoB spiked 4.6 percent-7 percent and fared among the top Nifty gainers.

Regulatory scare   From the pharma pack, Sun Pharma hogged the spotlight this week after USFDA came calling for a surprise check on their Halol facility after a spate of recalls from the pharma major recently. According to CNBC-TV18, USFDA made multiple observations and are focussing on manufacturing and quality control departments. Halol contributes 40 percent to Sun Pharma's sales in the US market and 25 percent of consolidated profits.

The stock tanked 6.2 percent in the week; Cipla which gained 10 percent was the top gainer from the pharma pack.

IPO buzz

The bull run sparked off by Modimania seems to have breathed new life into the moribund primary market. Debutants Snowman Logistics and Sharda Cropchem IPOs both got a thumbs-up from investors and got subscribed over 60 times more than their issue size. Snowman Logistics stock got listed at a premium of almost 70 percent on the NSE on Friday.

Prithvi Haldea, CMD, Prime Database is skeptical of a real recovery though. He said, "The problem is that despite the bull run for the last five-six months the filings with Securities and Exchange Board of India (SEBI) have hardly improved. There has been no filing for the last one and half months. It is expected that during September end there would be some filings which would take place to take care of the six month old accounts as of March. But there is no rush so the market is there but I don’t see a rush right now. There are two reasons for this, one is that the eligibility norms of Sebi which were revised a couple of years back have made it difficult for new companies, new projects, untested waters to enter the market."

What's Next

Investors will eye advance tax numbers slated to be released on Monday to get a deeper insight into the performance of corporate India in second quarter of the current financial. WPI based inflation numbers for the month of August will also be eyed.

US Federal Reserve's meet on September 16-17 will be watched by global investors, who will overanalyse it to get cues on the timing of interest rate hike in the US. The event can cause a minor speedbreaker in FII flows to Indian shores, say experts.  

Crude oil prices continue to languish below the $100/bbl mark. Depressed crude oil prices will somewhat take the pressure off the rupee which reels under dollar strength. Crude oil prices will remain in focus next week.  

Vandana Hari of Platts says the fundamental demand-supply story – supply glut and low demand – points to downward pressure on prices. She does not see oil prices racing back to USD 100 anytime soon.