(The views expressed in this column are the author's own and do not represent those of Reuters)
By Ambareesh Baliga
Indian markets were in a narrow Nifty band of 5550-5650 last week but volatility kept market participants on tenterhooks.
The winter session of parliament, as expected, opened with retail FDI being opposed by the Bharatiya Janata Party and other opposition parties. The logjam is expected to continue for some time as the Congress-led government seemed too strong-willed to be cowed by the threat to the passage of several financial bills.
Unless the government is able to convince its allies and some fringe parties, the FDI vote could shake investor confidence. The 2010 winter session of parliament was the worst in terms of productivity, followed by this year's monsoon session. It remains to be seen whether the ongoing session also enters the hall of shame. An all-party meeting on Monday should provide further clues.
Despite the tussle in parliament, further policy action is expected next week with the rollout of a direct cash transfer scheme for below-poverty-line families from January. This could be the trump card for the Congress ahead of the 2014 general elections.
The government seems to have taken a cue from the earlier ONGC fiasco as well as the recent 2G auction, pricing the Hindustan Copper share sale at a 40 pct discount. The stock closed down 15 percent for the week. But speculators seem to have taken advantage of the arbitrage opportunity which could see the stock moving towards the floor price of 155 rupees in the coming week.
The euro zone continues to totter with a special summit ending without an agreement on the seven-year budget. The next meeting would not be before the new year. The decision on a further bailout package for Greece will probably be taken next week. With a double dip recession in four years, and a clear divide among the leaders, the euro zone will continue to haunt world markets for a long time. Over the next few weeks, attention will shift to the fiscal cliff as the U.S. Congress returns after the Thanksgiving break. The big question is whether the world's largest economy is staring at recession.
In sharp contrast, China has shown signs of improvement with the HSBC November PMI data at 50.4, showing an expansion for the first time in 13 months. India is expected to grow at a slower pace of 5.5 percent with the threat of a downgrade from credit rating agencies.
It's a tough task to send the right signals by ensuring a smooth-running parliament, reining in the fiscal deficit below 5.6 percent, increasing tax revenues, ensuring successful divestment and keeping a cap on subsidies. For proposed divestments, the key would be attractive pricing. After Hindustan Copper, NTPC is next on the block and I expect a discount of about 8-10 percent as this is a widely traded stock.
Finance Minister P. Chidambaram has been prodding the Reserve Bank of India to finalise banking licences, but nothing is expected to move till the Banking Regulation Act is passed in parliament.
Ranbaxy could be in for a drubbing after recalling certain lots of their generic Lipitor drug from the U.S. market. Since it's a voluntary recall, the financial impact may not be damaging and could be a buying opportunity. Jet Airways was a star performer on expectations that the promoters may place five percent of their equity with strategic investors at a premium. Wonder why one should pay such a premium for the airline sector which rarely churns out profits.
The coming week would be a truncated one with a holiday on November 28 for Guru Nanak Jayanti, followed by derivatives expiry.
I do believe that emerging markets such as India offer a better opportunity for international investors. With the immediate uncertainties, there is a possibility of a temporary breakdown to 5400, so I suggest a wait-and-watch approach for an opportunity to buy at lower levels.
In case the retail FDI vote goes through, we could see the markets break out beyond 5650 — which again should be utilised to buy as that would indicate a resumption of the bull run we saw in the last few months. Till then we are in a no trade zone.
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With the crucial GDP data scheduled to be announced along with key corporate results, volatility is expected to prevail in the upcoming week. Disappointment on these fronts may push the Nifty down to the 7,200-7,500 range. Once we witness stability and consolidation, investors should increase their exposure, says Ambareesh Baliga. Full article