Market Update- 29/7/2014

The markets are going through some short term consolidation. Corporate results for the last quarter have been neutral to positive. The underlying trend still remains positive. We expect to go in to a period of consolidation moving forward. 7900 seems to be a short term resistance and 7500 the short term support. Markets should be playing in this region for the short term provided there are no macro triggers to break the support or resistance.

Fundamentally, the markets are trading slightly higher than their average Price to Earnings. It is a slightly tricky situation for the investor who is looking at past valuations to determine what kind of asset allocation he/she should be looking for at this moment.

Market Update- 14/7/2014

Last week was an action packed week for the financial markets with the Union Budget being presented in parliament. The markets started correcting a few days prior to the budget due to profit booking. We continue to see some correction even post the budget. The major indices are down nearly 4% for the week with the Sensex nearing 25,000 and the Nifty nearing 7450. Despite the correction both the indices are up nearly 18% from Jan 1st.

News that one of Portugal's largest banks (Banco Espirito Santo) is under trouble has weighed in on investor risk appetite and globally markets have seen a correction.

The technical indicators (Bollinger and RSI) have moved in to the neutral zone after last week's correction. The market is currently trading below it's short term moving averages (5,10 & 20). Investors should look at the correction as an opportunity to buy in to equities as per their risk-profiles.

Bond prices have come down and yields have moved up on expectations that India will not meet it's fiscal deficit target of 4.1% for the current year. Inflation no's are likely to come down. However, the monsoons are still weak and that could pressure the RBI in to keeping elevated rates. Some long-term debt exposure for the slightly more aggressive debt investor can be looked at.

Crude oil prices have come down on worries that Europe's financial sector is still not out of the woods and that could therefore affect the global economic recovery.

Gold is trading at $1331/oz. This is not much different from last week's prices in spite of worries in Europe. Prices have remained in this range largely because India did not announce any change to rules around gold imports in it's annual budget.

Market Update 4/7/2014

The major indices gained almost 3% in this past week as a result of pre-budget exuberance. The indices have continued to create new highs. The major event of the week is the Union budget due on July 10th. A lot of expectations have been built in to this rally. Which direction the market moves post-budget is a speculators call.

25,550 seems to be an intermediate support for the Sensex (we touched 26k today in morning trade). The index seems to be touching the upper edges of the Bollinger bands and therefore some consolidation should be expected in the short term.

Retail interest has picked up in the equity markets (as per ground reports). This means that the current long term bull rally has legs and should continue. Domestic Institutional Investors (DIIs) have also started turning net buyers in the markets and new laws and regulations are expected to help pique investor interest in equities.

Fundamentally the markets are trading just above their long term average valuations. While the trend for the short-medium term is clearly bullish, we would advise long term investors to keep this in mind while investing in the markets. Maintain asset allocation and maybe even slightly under-allocate towards equities at this point of time.

CPI inflation has come down marginally and yields on the benchmark 10 year G-Sec have also come down to close to 8.66%. However, rainfall has been deficient this monsoon and the RBI will be keeping an eye for any signs of movement especially in food prices. Crude oil has remained stable at around $ 111 for a barrel as geo-political tensions in Iraq seem to have been factored in to the current prices. This gives the RBI some room for maneuvering. However, it is expected to keep rates where they are, playing only with the CRR and SLR till conditions on the ground actually improve.

The Rupee has been gaining strength again on account of lower crude prices and strong FII inflows. It is expected to trade in between the 59- 60.5 range in the short to medium term.

Gold has move up slightly to $1317 odd on account of geo-political tensions and expectations of more monetary easing from the European Central Bank (ECB). We expect it to remain at these levels for the short to medium term.