Reforms And Results To Drive The Markets

The reforms and positive financial results have induced much required fizz in the markets to take them to a two-year high. The RBI’s monetary policy and the results are the trigger that the markets will look forward to, says Saikat Mitra

The month of January 2013 has indeed been an astounding one. In the last fortnight, the Sensex and Nifty crossed the 20K mark and the 6K mark respectively. The major Indian indices closed the fortnight with gains of 1.83 per cent and 1.39 per cent respectively.

The results season has also kicked off, and till the time going to press, we have seen 225 companies coming out with their December 2012 quarter numbers. The aggregate topline has grown by 17.36 per cent and the bottomline has almost doubled on a YoY basis. (Data Source: www.moneycontrol.com)

Infosys, which increased its guidance for the next quarter, set the right tone for the results season. Its IT peers Wipro and TCS followed suit. The behemoth Reliance Industries has also posted brilliant numbers. The company surprised the street by reporting a net profit of Rs 5502 crore posting a growth of 24 per cent on a YoY basis. The private banking space has also shown strength, with firms like HDFC Bank, IndusInd Bank and Axis Bank each posting a good set of numbers.

On the macro front, the Wholesale Price Index (WPI) figure for the month of December 2012 came in at 7.18 per cent against the street’s expectation of 7.3 per cent. The WPI has been showing a declining trend over the past three months, and is also under the RBI’s projections of 7.5 per cent for March 2013. The Consumer Price Index (CPI) number for the month came in at 10.56 per cent as against 9.9 per cent for November 2012. On the flip side, the Index of Industrial Production (IIP) data for November 2012 contracted by 0.1 per cent. The cumulative growth for the April-November 2012-13 period stands at one per cent as against the figure of 3.8 per cent registered in the similar period last year. The postponement of GAAR and the reforms in the Oil & Gas sector have also induced positive vibes in the markets.

Internationally too, some positives have emerged. On the European front, ECB President Mario Draghi suggested that the worst of the sovereign debt crisis may be over, saying that the ‘darkest clouds’ over the Euro area have lifted due to the decisive policy steps last year. Draghi’s comments indicate a sense of confidence that the three-year debt crisis has been contained and that the European Union can emerge from recession later this year.

On the Asian front, the Bank of Japan ended its two-day policy meeting, which was closely tracked by the global markets, The recently elected administration of Prime Minister Shinzo Abe put intense pressure on the central bank to act aggressively towards spurring growth and to end the spree of falling prices. The meeting saw a revision of the bank’s ‘price stability target’ from the earlier one per cent to two per cent.

Coming back to the Indian front, in the broader market, most of the indices have closed on a mixed note. The BSE Mid-Cap and the BSE Small-Cap indices closed on a negative note, declining by 3.78 per cent and 4.85 per cent respectively.

On a sectoral basis, nine out of the 13 indices closed in the negative zone. The BSE IT index has secured the top spot, with a gain of more than 10 per cent. The BSE Teck (+9.25 per cent) and BSE Oil & gas (+7.77 per cent) indices were the other top gainers. The main draggers in the last fortnight are the BSE Auto index (-5.26 per cent) and the BSE Metal index (-4.68 per cent).

Money inflows remained strong in the fortnight, with FIIs pumping in a stupendous Rs 7794 crore in equities. The total FII investment for the month of January 2013 stands at staggering USD 3 billion. This can be attributed to a hike in diesel prices, which is being received as a positive step to tame the twin deficits. DIIs ended in the red, selling off equities worth Rs 753 crore.

Next, all eyes will be on the RBI’s monetary policy meet that is slated for Tuesday, January 29. The street’s expectation is that the central banker will decrease the interest rates this time around to boost the economy. Apart from this, the corporate results will continue to be the other trigger for the markets.