Fed rollback jitters give Indian markets a shiver

iifl8th July, 2013 : Comments by Amar Ambani, Head of Research, India Infoline 

Fed rollback jitters give Indian markets a shiver

­The Indian equity market started the week off on a negative note with the Nifty once again shutting shop below the 200 Daily Moving Average. Weakness in Asian markets dragged the benchmark indices to open with a negative gap.

Sentiment further got dampened as the Indian currency hit yet another lifetime low on Monday, slipping past the psychological resistance level of 61 against the dollar. The rupee opened weak and plummeted to a record low of 61.20 against the dollar, surpassing its previous record low of 60.76 touched on June 26.

Positive unemployment data in the US has fuelled concerns that the Federal Reserve may rollback its stimulus programme earlier than expected. This resulted in equity and currency markets trading weak.

The Indian unit has lost more than 10% of its value this year and is the worst performing currency against all major emerging economies.

Every time the benchmark indices managed to stage a strong comeback, the bears resumed their onslaught. Their pullback rally was just not good enough for the market to close in the green.

The Sensex closed down 171 points at 19,324 while the Nifty closed at 5,812, down 56 points over Friday’s close.

The advance-decline ratio favoured the bears. On the Bombay Stock Exchange, 1,261 stocks declined against 1,053 advances. Only 117 stocks remained unchanged.

Volatility, as measured by India VIX, rose 3.5% to end at 19.34. It hit a day’s high of 19.85 and day’s low of 18.38.

FMCG, telecom and the IT stocks bucked the negative trend in trade today. On the other hand, the major laggards were oil and gas, PSU, realty, auto, metals and banking stocks.

In commodity news, June gold imports fell 80.56% to 31.5 tonne month-on-month. This indicates that the government’s measures to curb imports of hiking the import duty are working.


Telecom: The flavour of the day

The telecom space was in action today. Telecom major Bharti Airtel cleared its Rs. 67.96bn or over 10% debt by using proceeds it received by selling 5% stake to Qatar Foundation Endowment last month. Bharti Airtel had reported a net debt of Rs. 638.39bn as on March 31, 2013. The stock however ended weak 1%.

Peer Reliance Communications too hit an over 30-month high after it announced the demerger of its real estate business. The company continues its focus on asset monetization to reduce its balance sheet debt.

So, how should one play Bharti and Rcom going forward? IIFL Head of Research Amar Ambani recommends switching to Bharti Airtel where the risk reward remains favourable. “Considering the uncertainties surrounding the actual realisable value upon development and potential listing of Reliance Properties, we would raise our target price but still retain our sell call on Rcom given its expensive valuations.”