Markets stage recovery

The Nifty has managed a bounce back of 4 per cent this week after losing 10 per cent from the peak. However,we are still trading below the psychological mark of 6,000 on the Nifty. Despite the market-wide bounce back some points that are concerning us are that the bounce has come in on lower volumes with F&O turnover consistently declining below Rs. 1 lakh crores ever since the end of expiry. Though this is a general trend that post-expiry volumes tend to be sluggish,the bounce coinciding with lower volumes brings about some concerns. Some midcaps are still languishing well below their highs and the bounce hasn’t materialized amongst many stocks.

This week GDP numbers were announced,real GDP grew at a brisk pace of 8.9 per cent Y-o-Y in Q2FY11 higher than our and consensus expectations of 8.2 per cent Y-o-Y. Despite high base effect; this,along with upward revisions in previous data suggests that the economic momentum remains robust. On the activity front,agriculture and manufacturing picked pace while on the demand front,strength in private consumption surprised on the upside. Going ahead,we expect agriculture growth to maintain pace while non-agri GDP,particularly industry could moderate,reflecting the effect of past monetary tightening. Some components of the WPI basket are showing stickiness but the broader inflation trajectory is softening. We continue to believe that the case for near-term pause in the policy stance remains intact.

Meanwhile,primary markets continued to attract fresh flows. MOIL’s IPO was subscribed superbly with the overall issue being subscribed 56.4 times. QIB was subscribed 49x,HNI 143x,Retail 32x indicating huge demand for the issue. The FPO of SCI as well was comfortably done with overall issue being subscribed 4x.

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In yet another case,SEBI this week banned some firms and promoters for rigging stocks of their companies. Stocks of these promoters tanked by over 20 per cent in most case some of the noteworthy being names like Welspun Corporation,Ackruti City and Murli Industries.

We continue to maintain a cautious short term stance on the markets.

—Kedar Deshpande,Edelweiss