(The views expressed in this column are the author’s own and do not represent those of Reuters)
By Ambareesh Baliga
The “fiscal cliff” facing the U.S. economy continues to keep world markets on edge but the Nifty broke a two-week losing streak to gain 1.03 pct last week, closing at 5908.
The IPO listings of Credit Analysis and Research Limited (CARE) and Bharti Infratel proved that expensive public offerings are counter-productive. CARE opened with a 25 percent premium while Bharti Infratel opened at a discount and closed weak at 191 rupees against the issue price of 220 rupees. Usually, a new listing which opens at a discount and remains below the issue price in the initial weeks finds it extremely difficult to move into the positive range.
There is talk of increasing diesel prices by 10 rupees (about 20 percent) and it would be a bold move to reduce subsidies if the government is able to push it through. Looking at the government’s mood and its renewed confidence, this should be possible.
January will also see the resumption of PSU divestment with Oil India, NTPC and Rashtriya Chemicals and Fertilisers Ltd (RCF) lined up. One needs to see how successfully the remainder of the 230 billion rupee target can be raised in this financial year. The fine balance between issue pricing and the divestment target would be difficult to achieve.
The Empowered Group of Ministers is meeting next week to decide on the spectrum auction. About 400 billion rupees is expected to be raised, which seems a bit high considering the last auction in November which was a damp squib.
The big question is the impending “going over the cliff” for the United States and its impact on emerging markets, especially India. We would have a knee-jerk reaction as the United States is expected to face recessionary conditions. But history shows that such conditions would mean the Federal Reserve pumping more money, part of which eventually finds its way into the emerging markets such as India and China.
The latest to follow this trend is newly elected Japanese PM Shinzo Abe who is prodding the Bank of Japan to pump liquidity into the economy. On the other hand, the European Union seems to have addressed most of the issues for now. The New Year would throw up fresh challenges for the EU and the first among them would be the common banking supervisor.
Cement and auto numbers for December would be announced on Tuesday. Auto sales continue to be tepid but the street seems to have discounted this eventuality as most leaders show no signs of weakness. The cement sector is expected to see a round of consolidation. Metals have been outperformers after bottoming out in the first week of December. Renewed optimism on China seems to have rubbed off well and this trend may continue in the first quarter of the New Year.
HSBC India Manufacturing PMI data is expected on January 2 followed by Services and Composite PMI numbers on January 4. The tone for the markets would be set by the December quarter results which should start coming in by the second week. Apart from the IT space, most other sectors are expected to confirm a “bottoming out”.
The New Year will ring in with a sharp move either ways but a break below 5800 on the Nifty would be another opportunity to buy, as eventually renewed government confidence, corporate results and fresh liquidity will drive the Indian markets at least till the budget, if not beyond. And if the “fiscal cliff” is negotiated, we may cross the 6000 hurdle immediately.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various TV business channels.