Local, global worries weigh on markets in Nov

A slew of negatives - euro zone debt woes, the geopolitical tensions in Korea, housing scam and lower IIP data - weigh on the Indian markets in November

Major news for the month:

Reserve Bank of India raises repo, reverse repo rate by 25 bps

IIP for September at 4.4%, lowest in 15 months

Inflation inches down to 8.58% in October

Exports rise by 23% in September

India's growth on track; Q2 GDP at 8.9%



Indian Indices

It was a roller coaster November, as the Indian markets touched new highs at one point and then fell sharply at another point. The Indian markets corrected and turned volatile on account of negative news flow domestically as well as globally. The sentiments turned bearish with trouble once again started brewing in Europe as Ireland debt crisis deepened followed by the China growth scare that led to a hike in interest rate by China and the geopolitical tensions in Korea. Domestically, the alleged corruption cases of 2G scam and fake housing loan scam acted as a drag on the markets. Poor set of index of industrial production (IIP) data for the month of September at 4.4%, lowest in 16 months also spooked investor sentiment. India’s inflation easing to 8.58% for the month of October failed to lift the market sentiments.

India’s Q2FY2011 gross domestic product (GDP) came in at 8.9% against 8.6% seen in Q2FY2010.

The domestic indices hit new highs at the start of the month, with the Sensex and the Nifty touching 21109 and 6338 respectively. During the month, the Sensex and the Nifty swung 2154 points and 648 points respectively. Wrapping off the month, the Sensex closed lower by 511 points or 2.55%, at 19521 and the Nifty shut 155 points or 2.58% down, at 5863.

Global Indices

On the global front, all the major indices ended the month lower except Nikkei and Dax 100 which rose by 7.98% and 1.32% respectively. France CAC40 declined the most with losses of 5.82%. Most of the indices edged lower on persisting euro zone debt worries.

Sectoral and stock screening

Looking into sectoral performance, out of 13 sectors, four ended the month higher, while remaining nine closed lower. Among gainers, BSE Healthcare (HC) surged the most with gains of 2.33%, followed by BSE Auto that rose by 1.92%. BSE Information Technology (IT) and BSE TECk were other gainers. On the losers' side, BSE Realty tumbled the most by 19.52% on housing loan scam. BSE PSU lost by 8.37% and BSE Power slipped by 7.27%.

Among 'A' group stocks, Dish TV surged by 21.14%, followed by Great Eastern Shipping that rose by 16.86% and Lupin gained by 16.35%. On the losers' side, DB Realty declined the most by 50.36% as the company was accused in housing loan scam, followed by Hindustan Construction Company that slid by 28.77% on Lavasa project controversy and Hindustan Copper lost by 26.83%.

FII/MF Activity

The foreign Institutional investors (FIIs) were the net buyers of Indian stocks to the tune of Rs18293.1 crore, while the domestic institutional investors (DIIs) were the net sellers of Indian shares to the tune of Rs252.7 crore in November.

From Sharekhan Fundamental Research Desk

No doubt the recent events have seriously dented the sentiments and the Indian markets could remain volatile in the near-term. However, we remain sanguine about the medium to long term uptrend and look at such corrective phases as an opportunity to accumulate quality stocks. In fact, such dips are healthy for the markets and neutralise the valuation excess that tends to build up in certain pockets/sectors. In the previous bull runs also, the markets had witnessed corrections of 10-15% lasting for three to four weeks on an average. In the next few days, the markets should be able to form a base for the current corrective phase and slip into a new trading range above this base level.

In terms of the overall macro view, the economic recovery in India remains relatively quite strong despite the recent moderation in the IIP data. The GDP growth in Q1 and Q2 stood at a healthy level of 8.9%. Even on a conservative basis, most economists expect the GDP to grow at 8.5-9% in FY2011 and FY2012. In terms of corporate earnings, the consumption spending is robust and there are signs of a pick-up in the investment cycle. The consensus estimate for growth in the Sensex’ earnings are well above the 20% mark for the two-year period FY2010-12.