Week ahead: Eyes on auto sales, state poll results, rupee

By Aviral Gupta

A data light week for India with HSBC Markit Manufacturing PMI to be declared on Monday and HSBC Markit Services PMI to be declared on Wednesday - for the month of November. The manufacturing PMI for October stood at 49.6 indicating a third successive deterioration of business conditions across the country. Similarly, the services PMI for October stood at 47.1, a tad higher from a 4-1/2 year low of 44.6 in September - a fourth successive monthly contraction.

The investors would continue to focus on the flows, rupee and the monthly sales numbers of the auto stocks. They would also wait for the results of state assembly elections to be declared on December 8 which are seen as a proxy to the general elections to be held in May ’14.

Lately although there has been a slowdown in the flows from the FIIs, DIIs have stepped into the markets. It would be interesting to note the future trend in flows from DIIs as this may indicate that retail participation is coming back into the markets through DIIs.

With the closing of the swap window facilitated by the RBI on November 30th, I expect some pressure on the Rupee. About USD 25 billion has been received from special concessional swap windows for deposits by NRIs and overseas foreign currency borrowings by banks bringing our reserves to USD 286.26 billion as of November 22 compared to USD 295 billion as of November 23, 2012. In another new development, India is preparing to lobby major trading partners including Japan, Iraq and Venezuela to accept rupee payments for some of their exports which would stabilise rupee.

I expect the November sales figures for auto stocks especially the 2 wheelers to be buoyant especially due to prospering rural economy. India’s agriculture output grew 4.6 percent during July-September this year, up from 1.7 percent in the same period of the previous year. Cement counters also need to be kept a watch upon as typically cement sales especially in rural India increases before elections. Elections should be seen as a stimulus - by most conservative estimate of Rs 17,000 crore this time around - to the rural India in the form of spend by the candidates on campaigning in a run up to the general elections.

The global investors would keep a watch Friday’s non-farm payroll figure, coupled with the unemployment rate from US with the jobs data  being more relevant than ever as the FOMC will on December 17-18  and should these releases come in negatively it would bring substantial doubts to the possibility of a taper. In the Eurozone the ECB rate decision on Thursday is the major event of note. In Asia, the Chinese manufacturing PMI figure is likely to dominate the week’s affairs when released on Sunday.