THE WEEK PAST: During the week, caution and optimism went hand in hand. A rare error in Q1 GDP numbers was sorted out after a credible explanation from the Government. Overall, the GDP data only reinforced a growing view that economic fundamentals remain fairly robust. Having said that, PMI data on manufacturing and service sector activity and trade figures indicated that some softening could be underway and that growth may have peaked out. Also, inflation continues to hover near double digits, putting relentless pressure on the RBI to raise rates. The BSE Sensex and the NSE Nifty gained 1% each this week ending at 18,221 and 5,479 respectively but the broader market indices clearly outpaced the gains in the main indexes.
BSE Sensex intra-week high of 18,356 and low of 17,820
Nifty intra-week high of 5,513 and low of 5,390
India's economy grows by 8.8% in Q1 FY11 as against 8.6% expansion in the previous quarter (January-March), data released by the Government showed. This is the fastest pace of economic growth for the country in two-and-a-half years and might put further pressure on the Reserve Bank of India (RBI) to hike key interest rates to rein in inflation. India’s US$1.3 trillion economy may expand by 8.5% in the year ending on March 31, 2011, the most in three years, the RBI said on July 27. The benchmark wholesale-price inflation rate has hovered around or above 10% since January. 10-year government bond yields climbed last week to as much as 8.07%, near the highest level in four months, on concerns that the RBI may raise rates for the fifth time since mid-March to contain inflation. The RBI is scheduled to release its next monetary policy statement on Sept. 16. The RBI's repurchase rate is currently at 4.5% and the repurchase rate is at 5.75%.
Food inflation in India inched higher in the third week of August as did inflation for the Fuel group and the Primary Articles group, data released by the Government. Inflation for the Food Articles group stood at 10.86% in the week ended August 21 as against 10.05% in the previous week, the Commerce & Industry Ministry data showed. It was at 14.86% in the comparable week last year.
Inflation for the Fuel & Power group increased to 12.71% from 12.57% in the preceding week, according to the Commerce Ministry data. It was at (-)8.82% during the corresponding week of the previous year. The index for the Fuel & Power group rose by 0.2% to 386.7
Food and Agriculture Minister Mr. Sharad Pawar has reportedly made a detailed presentation to the Prime Minister on the issue of deregulating the sugar sector. According to Pawar's plan, the Centre should buy sugar at prevailing market prices for the public distribution system (PDS) directly from the open market in the new sugar year starting October.
THE WEEK AHEAD: With data showing improvement in the US macroeconomic numbers, especially in manufacturing and payrolls, the global risk aversion could subside further. Monday promises to be a good day for the bulls, as world markets are expected to rejoice a better than expected US jobs data. The overall lost jobs were lower than forecast and private hiring turned out to be higher than anticipated. But, the unemployment rate is still pretty high at 9.6%. Jobless rate is also pretty elevated in the debt-plagued euro-zone, which could see some slowdown due to the tough austerity measures.
Japan has just joined the US in announcing fresh quantitative easing to bolster growth even as the ECB has extended its very own bank lending program. China of course has its own set of issues. So, not all is well with the world economy. As a result, we will continue to face volatility - both in economic statistics as well as in the markets. So, after a good start to the week, we may see the markets turning choppy again as investors realise that a full-fledged recovery will take painfully longer than anticipated.
Not much data is due out of the US or China next week though a few key reports are expected out of other parts of the world. Australia, Japan, Canada and the UK will announce latest interest rate decisions. Japan will also announce its latest GDP data. For India, the key events will be the IIP report, to be released on Sept. 10., apart from monthly inflation and the outcome of the RBI meeting in the middle of the month. The broad undertone will continue to be cautious. Large caps will face resistance at higher levels but the party may continue in the non-index counters.
