Mkts next week: Experts see +ve reactions on govt, RBI move
Published on Sunday, January 4th, 2009 at 11:17 AMAuthor: admin (5507 Articles)
The government and the Reserve Bank announced the fiscal and monetary policy measures on Friday evening, the market has started displaying strength, and perhaps the equity markets will start reacting positively at early trade on Monday morning.
Here is a verbatim transcript of Udayan Mukherjee’s comments on CNBC-TV18. Also watch the accompanying video.
There should be some reaction to the monetary policy moves, because they are a little better than expected. You can debate how long the banks will take to pass all of it down, but they will pass it down and bankers are increasingly coming around saying that they will pass down cuts in both deposit and lending rates. So, interest rates are going down, bond yields presumably falling below 5%, on Monday morning are all positive for equities, so there will be reaction particularly in some of the interest rate sensitives
On the fiscal policy front I don’t think the stimulus package was great, there were small bits of it, which are not bad, but still there is a lot left to be desired, so the reaction will be probably more to the monetary policy package than to the fiscal bit.
There was not much on the housing front or the real estate stocks front, as was expected, also there wasn’t much for the exporters, which was also largely expected. However, there was a bit about trying to route in money through NBFC’s, but, both access to capital and the willingness of infrastructure developers to take that money is a bit suspect.
On the direct expenditure from the government, precious little has been done, so Rs 30,000 crore more is thrown into IIFCL’s kitty over a period of time, the time it takes to come and the quantum of it is fairly low, so I don’t think the fiscal package measures up to anything major aside of a sentimental blip up, but the monetary policy measures were good enough to spur banks to lead a rally in the market on Monday at least.
I feel the fiscal and monetary policy measures will nudge the Nifty close to 3,150 or even 3,200 and a 4-5% kind of move over a couple of days is entirely possible on the back of what is happened and would take the Nifty to some critical point of 3,150 to 3,200, which it has been struggling to cross over. But in an overall frame work, where the market has shown an inclination to try and edge up rather than go down, because it seems to be finding support lower and it will be constructive enough for the market to break out above 3,200 and make that dart to 3,400-3,500 or even more. It is a more difficult question to answer, because at the end of the day it is not entirely unexpected that these rate cuts would have come from the RBI and the fiscal package is not big enough.
Also the market will realize that the RBI is probably more or less done for the moment. The government is also certainly done for the moment, with the fiscal stimuli, so now there is no more stimuli, it will take it to 3,200 or thereabouts and then global markets, some bit of less disappointments from the earnings, will have to carry it from there.
The government has announced a second fiscal stimulus package amounting to Rs 20,000 crore. Meanwhile, The RBI has cut the cash reserve ratio by 50 bps and both the repo and reverse repo rates by 100 bps. (100 bps=1%) The CRR now stands at 5%, while the repo rate post the cut stands at 5.5% from 6.5% earlier. The reverse repo rate is now at 4% from 5% earlier.
Commenting on the fiscal package, Montek Singh Ahluwalia, Deputy Commissioner, Planning Commission, said, “The existing restrictions on the ECB have been removed making it easier for companies that want to borrow to be able to get extra borrowings from abroad. The government is designating a special purpose vehicle or SPV, which will be used to channel financial support to the NBFCs in a total amount which could be Rs 25000 crore. Steps are also being taken to make sure that public sector banks will be able to provide assistance to NBFCs for financing of commercial vehicle purchases.”
Vinayak Chatterjee, Chairman, Feedback Ventures, said, “The stimulus package 1 and 2 – the total amount that they have been able to raise, has been Rs 40,000 crore, so the take on it is that when you combine existing infra projects that are suffering on account of liquid and international rates as well as upcoming projects, it seems to be insufficient.
While, commenting on the rate cuts, Chanda Kochhar, CEO Designate, ICICI Bank, said, “This is a clear indication that softening of interest rates will take place further. I think interest rates will go down across the system, both on the deposit side and the lending side. We have only been reducing our dependence on bulk deposits. We have been saying every quarter, that we are actually reducing the quantum of bulk deposits. So, that has enabled us to quite substantially re-price the bulk deposits.”
On Fiscal Package: Analysis
Here is a verbatim transcript of Raja Rajeshwari’s comments on CNBC-TV18. Also watch the accompanying video.
There was a lot of excitement of pre-package, but after the package there was said that a lot more could have been done. The key thrust was on infrastructure funding, where in IIFCL will be allowed to raise Rs 30,000 crore more via tax-free bonds and this will be used to fund Rs 75,000 crore of infrastructure funding over the next 18 months. The second thumbs up was for ceiling on ECB borrowings being removed and relaxation of end usage, wherein integrated township developers could use their ECB route. Also NBFCs which are into infrastructure funding can look at the ECB route, which means that IDFC and Shree Infrastructure will be in focus.
Meanwhile, exporters got their pound of flesh with restoration of duty drawbacks in select sectors and the DEPB scheme extended till December 31 2009. There was withdrawal of CVD in certain sectors, but the general feeling was that the import duties in cement or TMT bars will increase only marginally, so you get only a little bit of protection from the domestic players. It looked like there was a lot of excitement in the commercial vehicles or CV sector and the feedback from the CV players. However, a lot more could be done and they are waiting and watching for easing of rates in the coming days to help them in overall demand.
On Bond Markets: Next Week
Here is a verbatim transcript of Latha Venkatesh’s comments on CNBC-TV18. Also watch the accompanying video.
It was a party out there in bond markets on Friday itself, because the yield on the tenure bond fell in one swoop from about 5.35%. The rally is not over and on Monday you should see it going from about 5.35% all the way to 5.07%. We might also see it go below the 5% mark on Monday itself and chances are that it could reach an all time low piercing that 4.88% that it set on October 2003. But it won’t fall beyond 4.8%, perhaps because there is a fear that too much of paper is going to be issued by the central government and by state governments who are now being allowed up to about Rs 30,000 crore. So all told, a rally, but muted by the fear of extra issuance, the rupee will also see some rallying, because the stock markets are expected to rally and some freedom is being given to the ECBs as well, so all told, its a positive for the rupee’s movement
Michael Hartnett of Merrill Lynch said “The upside in Asia in 2009 is constrained by weak global growth; the downside is protected by excess pessimism and cheap valuations. I prefer China over India. Cash-rich China is embarking on a secular uptrend versus an Indian corporate sector dependent on foreign capital. I am overweight on telecom and banks in India.”
Trading Ideas to Work With Next Week:
Sudarshan Sukhani of Technical Trends said “If the undertones remain positive we can expect Indian banks to do better than the others, the stock is currently available for around Rs 140, and it has just broken out of a trading range. If the stock falls below Rs 115 then long positions should be closed for a loss. If it continues to go up, then we can hope 180 or even higher.”
MTNL is trading at the multiyear low stocks that are at new lows, should not normally be purchased, but this one is different, because there is a sense that the lows have already been made, and the stock is likely to move up. MTNL at Rs 80 is stock worth buying fro a three year horizon.”
While, Ashwani Gujral, Technical Analyst said, “Our first pick is Dena bank and that’s moved out of the consolidation between to Rs 32-34 with a stop loss of Rs 30 and the target is Rs 45. The other pick is Sesa Goa that moved in a narrow range quite a bit and has now broken out. It has a stop loss of Rs 83 and a target of Rs 122.
Meanwhile, Rahul Mohindar of viratechindia.com said, “State Bank of India or SBI is setting for a good move; we have seen almost 15 trading sessions, where Rs 1,250 mark has been maintained. The volume pattern seems indicative that we are probably going to get some throttle on the upside and if some interest does come in this banking space, probably SBI right through the week could see levels like Rs 1400, and on the downside Rs 1,250 is very good support
Mercator lines will have a very interesting pattern on the volume front and if you look at mid December, we have these two day rallies rushed up to levels up to Rs 30-40. Key resistance level of Rs 40 is definitely there, there is interesting value good base, building that happens on the stock.
On F&O:
Here is a verbatim transcript of Anichya Shah’s comments on CNBC-TV18. Also watch the accompanying video.
Extremely low turnover in the first week of 2009, we started off with a 3000 call being 2nd highest Open Interest and consecutive closes above 3000 may lead to further covering
3000 Put: Consistent buildup through the week 3200 and 3300 Call see build-up on the upside, those are seen as significant resistant points 3000 remains some support because it has. So far the market is not showing any major signs of nervousness.
F&O Picture This Week:
* Unitech has been up 34% for week with 47% OI build-up, most of the monetary action that we saw over the weekend is priced in and you may see some bit of risk of unwinding pressure after recent run up as nothing has come really on the Real Estate Front.
* Dena Bank has seen a move up 12% for the week as it saw a huge buildup seen on Thursday and Friday’s trade.
* IDFC up 21% for the week with 16% OI build-up, the stock was up 5% on Friday with 1% Cost of Carry
* RNRL up 16% with 93% OI build-up cost of Carry remains strong through the week Friday sees 3% positive traction but like Unitech it’s in for some unwinding pressure if the market looks slightly weak.
Experts’ View:
Jitendra Panda, Motilal Oswal Securities, said, “Niftty will could cross 3,100 after CRR cut and stimulus package, I expect Nifty to touch 3,200-3,250 levels before the result seasons begins, and 3,100 to act as good support.”
VK Sharma, Anagram Stock Broking, said, “Nagarjuna Fertilizers had 11% Open Interest build-up seen, buy 20 call at 85 paise, gain of nearly Rs 2.15 per share seen.”
Source : MoneyControl
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