Markets

Consolidation phase likely to continue for equities

K.S. BADRI NARAYANAN | Updated on December 16, 2012 Published on December 16, 2012

BL17_MW_RBI   -  PTI

The stock market may remain in a narrow range ahead of the Reserve Bank of India meet on Tuesday that will decide on interest rate. Though most market participants do not expect a rate cut after a modest decline in the wholesale price index (WPI), some expect that the central bank might unleash its dovish step this time around by cutting interest rate. WPI inflation declined to 7.24 per cent in November from 7.45 per cent in October.

“We continue to expect the RBI to cut CRR [cash reserve ratio – the amount banks must keep with central bank] 25 bps on December 18 to pull down lending rates to support growth. After all, India is the only BRIC where lending rates are almost at their 2008 peak,” said Bank of America-Merrill Lynch.

Besides RBI’s stance, corporate advance tax data for December will also send clear signal to market participants. Individual stocks will react to the tax outgo commitments.

Reports indicate that advance corporate tax collection from the top 100 companies increased 15 per cent over the corresponding previous figures. While companies from across sectors such as TCS, Jindal Steel, Bajaj Auto, ICICI Bank, HDFC Bank and YES Bank, Cipla, Ambuja Cement, ACC, UltraTech Cement, M&M, Hindustan Unilever, Colgate, BPCL have paid higher taxes, Tata Steel, L&T, SBI and Tata Chemicals paid less than the previous year’s figures, said media reports. Clarity will emerge only in the next few days on this front.

However, the market undertone remains bullish after a slew of reforms initiated by the Government.

For its part, the Union Government has been showing its aggressive stance on the reform front to put domestic growth back on track and infuse confidence among private corporate houses to shore up investments. The Finance Minister last week warned that India will have to take some “bitter medicine” to bring the fiscal deficit situation under control.

The Government’s perseverance on reforms got a booster after Parliament gave nod to its FDI proposal in multi-brand retail. Last week, the Union Cabinet cleared the Land Acquisition Bill to facilitate land acquisition at a faster pace in a transparent manner and also provide better compensation package to farmers/land-owners. It also cleared the formation of Cabinet Committee on Investments to expedite mega infrastructure projects, besides approving a 30 per cent cutin the reserve price of unsold airwaves in four telecommunication zones.

“As we have been highlighting, the Government needs to correct the bad growth mix (low investment, high fiscal deficit and high rural wages) to bring back the productive dynamic (high growth, moderate inflation). Today’s move confirms the Government’s determination to continue to implement policy measures to improve the investment trend which received firm direction with the bunch of measures taken up in mid-September 2012. We believe that policy makers are cognizant of the need to revive the investment sentiment and have moved in the right direction,” said Morgan Stanley.

However, sentiment will turn sour for equities if the US fails to address the fiscal cliff as time is running out. Till now signals emanating from the US were more of confrontation among Parliamentarians. Markets expect to see hard proof of progress being made as the year-end deadline on the fiscal cliff approaches. Crucial week ahead for equity markets across the globe.

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Published on December 16, 2012
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