Weekly Close: Politics cementing a tombstone for markets !

Markets had an excuse of a global meltdown during the session last week but this week there was really no excuse. The there was none this week but the market itself. The Budget repercussions were felt this week and it stood out as the stand off between the cement manufacturers and the Government. The Industry was adamant at the not so logical way of the Government to cool prices. There was a war of words and threats. Finally the Industry backed off. Its yet another debacle for a economics where populism seems to have won. There is a faint hope though that the Government will roll back the excise duty. But hope is on what the markets live on. Global markets was the ripples of Yen carry trades getting unwound. Japan was down on worries of strong yen hitting export business. Other markets were down on worries that cheap Yen funds getting withdrawn. Later part of the week however saw stability. We have been mentioning about this increased interest rates in Japan for months now. However even we were surprised at the ferocity of the fall. Clearly the direction was down. Metals and cement crash added fuel to fire. Indian Markets showed strong recovery on Thursday with the cement controversy behind it. However Friday had another disaster in store from the Commerce Minister. The less said about it the better. The markets will now price in worries from Politics where the Congress seems to be acting in panic and that has clouded sound judgement. We have seen the impact of such decisions on Power sector where capacities have not come simply because the investment returns were killed by free power for farmer. The Fertiliser sector was killed with returns not justified. The story goes on with sugar and now.. its the cement sector. Rs 45000 cr of investments in Cement could get jeopardised is the Government acts the way it is doing.. and the loser will be the economic growth.

Inflation is numbers remained a worry. Inflation for the week ended January 24 rose to 6.10% against expectation of less than 6%. Various steps have been taken but thats really not having an impact. The real impact will be felt in a matter of a month we believe. There is a base effect there. Supply side issue also needs to be tackled well.

Leading the rally for the week were Bharti Airtel +6.4%, IPCL +5.96%, MTNL +5%, HDFC Bank 4%. HLL also gained 2.54% for the week as most of its loss was covered in one single day. Pharma has shown some strength we may see some action here.

ITC down 7.32%, Arvind -9.5%, ACC -8.6%, Alok -5.52%, Dabur down 7.5% India Cem -9.4%, Maruti -5.5%, M&M -4.5% and Tatamot -2.3% led to the index loss. Cement and Banks where main counters which were smashed and badly.

Cement party spoiled by Govt and thats really a bad sign. Investors will vote with their feet !

Cement sector was at war with the Govt. this week. They stuck to hiked prices despite warnings by the FM. The cement manufacturers said that they were not in a position to absorb the increase in taxes following a differential duty structure slapped on them in the Budget. The excise duty on cement priced above Rs 190 per bag was increased to Rs 600 per tonne from Rs 400 in the Union Budget last Wednesday. Duty on cheaper cement bags was cut to Rs 350. And then there was history created with the Commerce Ministry losing the debate on a TV channel. But really it was the Ministerial diktat which has prevailed.. This could have serious repercussions on Indias Image. The only hope is from a roll back of the hiked duties. Fingers crossed on this one.

Century saw a smart recovery on the back of its property in Mumbai. Century holds 30 acres of land in the heart of the city of which roughly of 10 acres, was taken on lease from Bombay Dyeing on a 999-year lease and can be extended for another 999 years apart from Century Bhavan at mid-town Worli. Gujarat Ambuja sold 2 acres at Rs 333 cr and the deal was signed this week. Using the same benchmark rates as the latest deal, (2 acre plot in Kalina for Rs 333 cr) just the land value is more than the market cap of the company inclusive of debt. The stock was also supported by some dividend news. We remain positive on Century..

Primary steel manufacturers had also raised hot-rolled steel prices across the board followed by increase in 1% education cess. But then they rolled back the price hike on Govt. request to assist in inflation control. The FInance Ministry seems to be becoming the department for price control.

ITC saw all it gains go up in smoke. The Govt. increased excise duty on cigarettes by 5%. Now market news is that, ITC may increase price of cigarettes. It is believes that a 7% sustained volume growth in cigarettes provides comfort with regards to the company's ability to pass on burden through price hikes to the customers. However the things really seem difficult here. The big negative is that hopes of VAT not being implemented may receive a jolt. Its likely that VAT would be imposed as well. The stock was hit.

The week continued to be tough for the IT sector as well. Talks that Fringe Benefit Tax would be removed on ESOP had the stocks up in euphoria. But there was really no positives. Knowing the FM and his rationale it seems unlikely that the FBT will be removed. The catch here is that details on the quantum or tax or the % of the actual to be considered for tax is not yet decided and that the quantum may be the positive surprise the market was waited for. The Markets have reacted adversely and the FM may want to give it a small push..! So again we have some hope here.

Idea cellular was listed this week and valuation enjoyed by the company led to rally in other telecom stocks with strong gains posted by the GSM subscriber base. Auto stocks also came under the hammer this week. Some stock of interest was M&M. M&M acquired a 43% controlling stake in the 4th largest tractor firm Punjab Tractors (PTL) outbidding Hinduja group firm Ashok Leyland. This acquisition will help increase M&Ms market share to 40% from 30% currently. The big positive is that it would gain in technology with Swaraj Mazda as well. Markets had priced in the expectations and the stock came in for profit taking.

Technically Speaking: Market have found support near 12330 and have formed a hammer on the weekly charts. A hammer is a bottoming formation, but needs confirmation. The bias is shifting slowly towards the positive side. A cross above 13100 provides confirmation. Resistance on the way up are 13380