Todays Stock Market Summary Chart Of Friday February 7, 2017

Todays Stock Market Summary Chart Of Friday February 7, 2017

   February 07, 2017       prabhakardalvi

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Will India grow at 7%? The government and the RBI still think so.  I think the 'official' GDP forecasts must be taken with a pinch of salt. The fact is that government does not know how much of an impact demonetisation had on the economy. Yet the official estimate of GDP growth is 7.1% for FY17.

Today's Loss for - SUN pharma ( 680-668-669)

The RBI's two-day monetary policy meeting is under way. Expectations are that the RBI will officially lower its growth estimate. This wouldn't surprise or worry us.

We would be more interested in what the RBI will do tomorrow on the policy front now that it has the data from the demonetization exercise.

Remember that banks did cut rates when they received a flood of demonetised notes. They are highly unlikely to cut rates without a repo rate cut from the RBI. Stay tuned for our analysis on the policy tomorrow.

Chart of the Day  

Speaking of the monetary policy, everyone and their uncle seem to be expecting a rate cut tomorrow. But no one seems to in agreement about the amount.

The repo rate (i.e. the rate at which the RBI lends to banks) stands at 6.25%. This level is quite reasonable we believe.

However, corporate India does not think so. As always before any RBI policy meeting, they have started clamoring for a rate cut. We even read a suggestion for a 0.75% reduction!

As today's chart shows, the repo rate has fluctuated in a range over the last six years. It is back to where it was in November 2010. The last change was a cut to 6.25% last October.

Repo Rate is Trending Down

So where to from here? It is entirely possible the RBI could reduce the rate a bit more. However, it cannot lose focus on inflation. With commodity prices showing signs of moving higher, the central bank will have to walk a fine balancing act without giving in to the whims of corporate India.

After opening the day flat, the Indian share markets traded on a negative note. Sectoral indices are also trading on a negative note with stocks in the metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 134 points (down 0.5%) and the NSE Nifty is trading down 38 points (down 0.4%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by around 0.2%.  

Today's Investing Mantra         

"Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it" - Peter Lynch

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Investors Should Not Fear The May Effect in Stock Market

Investors Should Not Fear The May Effect in Stock Market

   April 28, 2015       Unknown

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It's a cruel summer in the markets. The "May effect", an annual phenomenon investors have come to dread, appears to be taking shape again. Consider this. The market went on a correction course on 13 April and the Sensex shed 1,368 points over the next five days. The Sensex fell by another 270 points on 22 April and hit a low of 27,400, before bouncing back with a modest gain of 214 points. The Nifty also recovered from a low of 8,300 on 22 April. However, the pull-back was short-lived and both the Sensex and Nifty lost 155 points and 31 points respectively on 23 April. 

May and October can be tough for stock investors (see chart). In fact, the May weakness is a global phenomenon which has given birth to the market adage, "Sell in May and go away." 

Though called the May effect, the correction doesn't happen exactly according to the calendar month always. For example in 2011, the major sell-off started on 21 April and lasted till 25 May (see table). It did not happen at all in 2014 thanks to the election results— a business-friendly government was elected with a clear majority. Instead of the normal correction, the honeymoon took the market to new all-time highs. Now that the market's honeymoon with the government is over, what is going to happen in 2015? The general expectation among experts is that the May effect will be clearly visible this year because several other negative factors are at work too. 

Investors Should Not Fear The May Effect in Stock Market

First is the weak set of corporate numbers. "Though it is too early to comment on the overall results, there are some disappointments. While Reliance IndustriesBSE -1.09 % reported good numbers, IT majors like TCS, WiproBSE -0.31 %, HCL Tech, etc disappointed the market," says K. Sandeep Nayak, ED & CEO, Centrum Broking. The disappointment with weak numbers is more this time because the market had factored in a possible turnaround with a stable government. "After a business friendly government came to power, there were hopes that things will improve in a year. As the recovery is still not strong, it is affecting sentiments," says Jigar Shah, CEO, KIM ENG Securities. 

Another factor triggering pain is the decision by the Income Tax Department to send minimum alternative tax (MAT) notices to foreign portfolio investors (FPI). According to sources, the department has already issued MAT notices to around 100 FPIs. In some cases, the subject matter dates back 7-8 years, a first in the last 23 years of FPI investment in India. "This retrospective tax is causing a lot of anguish," says Shah. This also raises operational hurdles for the foreign funds. "These funds can't collect MAT retrospectively from the investors who have already redeemed. 

This is like trying to collect additional fares from passengers after they have alighted from the bus," says Nayak. After several days of market fall, the Income Tax Department clarified that "FPIs covered under double taxation avoidance agreement (DTAA) will be exempt from MAT". 

The pull-back on 22 April can be attributed to this. However, it does not solve the problems of FPIs coming from other countries and the pressures on markets will continue for some time due to this. 

There are several other negative factors at play. The meteorological department has predicted below normal monsoon. Rain failure can create problems like high food inflation and reduced rural demand. The fall in international commodities, especially crude, was the main factor that helped bring wholesale inflation to negative levels. The recent pull-back in crude prices may push it once again to the positive territory. Spike in crude prices and a bad monsoon is something our economy can ill afford. It will also force the RBI to delay rate cuts. 

However, there is no reason to panic. "Though the Nifty could dip below 8,000 levels, value buyers will emerge. Our Nifty target for December is 9,540 and we are not changing that," says Shah. Long term investors should try to make use of this annual phenomenon.  - ETNOW

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