Weekly Investment Update

Few words before I get into the update. Investing is akin to playing a test match; the key ingriedients like high levels of patience, following a gameplan, ducking the bouncers, leaving out the bad ones, timing the good ones etc apply to both the fields. A single over may not have any material impact on the outcome of the test match unlike the ODIs and T20s. Such is the case with investing where a single week may not really impact the long term investors. Weekly updates are intended to provide a broad overview of the markets in the current perspective.

Weekly Update:

The first week of the New Year saw the key benchmark indices tumbling and this is after scaling seven week highs early in the week. The increasing fears of an interest rate hike by the RBI weighed on investor sentiment. The Sensex and the 50-unit S&P CNX Nifty fell below the psychological 20,000 and 6,000 levels, respectively. Banking stocks declined on the concerns of higher deposit rates which will have material impact on the banks' net interest margins, thereby hurting profitability. Auto stocks slumped on worries of higher interest rates and the possibility of higher vehicle prices which can effectively dent the demand for vehicles.

The BSE Sensex tumbled 817.28 points or 3.98%. The S&P CNX Nifty tanked 229.90 points or 3.74%. The BSE Mid-Cap index and the Small-Cap indexfell by 4.26% and 3.18% respectively.

Food inflation continues to worry the policy establishment. It accelerated to the highest level in more than a year in late December 2010. The food price index rose 18.32% and the fuel price index climbed 11.63% in the year to 25 December 2010. Annual food and fuel inflation stood at 14.44% and 11.63% respectively in the prior week. The primary articles price index was up 20.20% in the latest week, compared with an annual rise of 17.24% a week earlier.

India's manufacturing activity continued to expand in December 2010, although the momentum from the previous month eased due to capacity constraints and a slowdown in new orders, a survey by HSBC showed early this week. The monthly purchasing managers' index eased to 56.7 from November's reading of 58.4, though it stayed well ahead of the threshold of 50. Anything above 50 indicates expansion.

What to look forward to?

Corporate earnings for Q3 December 2010, which will start trickling in from the next week, will effectively set the direction for the markets in the near term. IT major Infosys kickstarts the earnings reporting season on Thursday, 13 January 2011. Steel Authority of India also will announce its Q3 result on Thursday. Housing Development Finance Corporation (HDFC) announces Q3 result on Friday, 14 January 2011.

On the economy front, the government will announce industrial output data for the month of November on 12th January 2011. Industrial output soared 10.8% in October 2010. The government will announce inflation data for the month of December 2010 on Friday, 14 January 2011. The benchmark wholesale-price inflation cooled to near a one-year low of 7.48% in November. Persistent rise in food inflation remains a major cause for concern even as it accelerated to the highest level in more than a year in late December 2010.

On the global front, U.S. stocks advanced for the sixth straight week, the longest streak since April, as stronger-than- estimated employment and service sector data lifted confidence in the world’s largest economy. Asian stocks rose for a fourth straight week as exporters gained on a rising dollar and U.S. economic reports that boosted confidence in the world’s largest economy.
The Shanghai Composite Index climbed 1.1 percent in China, after a slowdown in manufacturing boosted speculation that inflation eased last month, reducing pressure on the government to impose further curbs to rein in rising property prices.
In Japan, the Nikkei 225 Stock Average rose 3.1 percent as a stronger dollar boosted the profit outlook for Japanese exporters. Hong Kong’s Hang Seng Index gained 2.8 percent, and South Korea’s Kospi index rose 1.7 percent. Australia’s S&P/ASX 200 Index declined 0.9 percent.

Have a prosperous week! More updates would continue to flow in.

Gopalakrishnan V
Founder and CEO
Lateral Consulting

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