Markets To Remain In Narrow Range

It was an eventful fortnight on the domestic as well as global equity markets as a lot of macroeconomic data was announced. While on the domestic front, the Finance Minister(FM) presented the Vote On Account (General Elections being scheduled in April 2014, it was a vote on account instead of a regular Union Budget) and on the global map, Jennet Yellen presented her first speech after being elected as the new US Federal Chairman. 

Apart from that, few other domestic announcements like Railway budget (Railway vote on account), IIP numbers and CPI numbers also kept the investors occupied. In a nut shell the preceding fortnight was high in terms of events and announcements. However, the Indian Equity Indices remained highly range bound despite so much of macro data being announced. Let’s take a detailed look at the events. 

The most important event was the Vote on Account. Usually the Union Budget creates a lot of volatility in the equity markets, at least on the intraday basis. Obviously, it has to as it provides a clear picture about the nation’s balance sheet. However if we consider what happened this time, it was a clear picture of what UPA government has done in the past ten years.

It was more of a report card of UPA Government (as expected articulated in favour of UPA Government) rather than focusing on the Indian economy. It was more focused on general elections scheduled in the coming few months, rather than what is the need of the hour-reforms. 

In the last few minutes of his speech, the FM made few announcements which were favourable for the automobile companies, FMCG companies and a few domestic mobile handset manufacturers. Apart from that, there were hardly any changes in the macro economic scenario. Overall, it was a dull and tepid session with hardly any intent to bring any reforms. The Railway Vote on Account was a damp squib. With general elections around the corner, it was a no brainer that the government would not go ahead with any fare hike as it would have been a political hara-kiri. 

The data on the Index of Industrial Production (IIP) and Consumer Price Index (CPI) however provided some cheers to the market. The CPI for the January 2014 came in at 8.79 per cent as against the 9.87 per cent in December 2013. The IIP for the month of December 2013 was negative; however the positive factor is that the contraction was lower at 0.6 per cent as against the contraction of 1.3 per cent in November 2013. 

The take away from the IIP numbers is that the demand destruction continues and hence it may eventually result in inflation easing off in the coming years. One noticeable factor is the October to December quarter usually consists of festive demands. With the IIP numbers contracting in the festive period, it is a worrisome matter. 

On the CPI front, the contraction occurred mainly on account of declining food inflation. We consider cooling-off in CPI as a major positive in the context that the RBI will eventually now start using CPI and WPI for inflation indication. With IIP contracting and the CPI numbers declining, we opine that the RBI may get some lee-way in terms of providing more liquidity.

While this was on the domestic front, globally Jennet Yellen in her speech stated that the tapering would continue. This was again on the expected lines and has already been discounted in the markets. As for the markets, the quarterly results season has been quite tepid. We have provided a detailed Analysis of leading sectors in this issue. As for the markets, with no major triggers in near future, the markets would remain in a narrow range.