Weekly Review and Forecast. Fundamental View.

>> Sunday, October 26, 2008

The last week had commenced on a positive note on the back of positive global cues and a surprise cut by the RBI in the Repo rate by 100 bps to 8% to ease the liquidity crunch. SEBI’s warning to foreign funds against overseas lending and borrowing of Indian securities triggered short covering and thus capped the downside in the trading session that followed.

However, by mid-week, the Indian markets once again witnessed across-the-board selling and remained at the mercy of weak global cues which worsened on account of lower corporate earnings and increasing fears of a full blown recession across global economies.

Back home, lower than expected earnings, increasing forex losses, a cautious outlook by major companies for the forthcoming quarters and sustained selling by foreign funds continued to weigh heavily on market sentiment. Even the steadily declining inflation rate of 11.07% failed to enthuse investors.

Reliance Industries, the bell-weather Sensex pivotal posted its lowest growth in net profits over the past ten quarters against the backdrop of reducing refining margins and a 70% rise in interest cost.

Selling was further accentuated as RBI kept the policy rates unchanged in the mid-term policy meet. Resultantly, the Sensex plummeted almost 11% on the last trading day of the week to end significantly below 9000 mark. Adding to the market dismay was the absence of an interest rate cut in the RBI’s credit policy meet.

For the week ahead, even though lower borrowing costs on account of the softening interest rate regime may support stocks, the weakening rupee is likely to add pressure to domestic liquidity.

Further, even as Governments across the globe try to resolve the financial mess by injecting liquidity from all avenues, relief therefrom is likely to be overshadowed by recessionary fears and deteriorating health of corporates, especially in US.

Moreover, the macro-economic picture in India too is turning sour as the government has finally admitted to the possibility of a sharp drop in GDP growth for FY09 and that the targets on fiscal deficit will be missed. Hence, given the weak macro-economic factors and sustained uncertainty over the impact of the credit crisis on the global economy, investors are likely to tread cautiously.

For now, the truncated week ahead against the backdrop of holidays for the Deepavali festival and derivatives expiry could enhance the ongoing volatility and resultantly, there could be wild price fluctuations in the offing.

Going into the Festive Season, the only positive is that notwithstanding the all round gloom, the risk-reward ratio for investing in equities is getting more favourable and those with both, funds and patience can start buying into stocks selectively now.

Source: - TheIPOGuru.Com