Last week the Sensex and Nifty ended up gaining 973 and 292 points respectively. Swapnil Suvarna feels that the domestic markets will remain weak and advises you to exercise caution
Domestic markets made a strong recovery last week, with the Sensex and Nifty closing at 16,821 and 5,040 gaining 6% each. As expected, foreign investors ended up purchasing equities worth Rs 2,145 crore which buoyed the market trend whereas the domestic investors ended up being net sellers.
The week started off on positive note following an upbeat outlook on the US economy from the US Fed Chief Ben Bernanke and the end of the standoff between the government and anti-corruption activists. Domestic markets lead by bank stocks gained further momentum on news of a merger between Greece’s EFG Eurobank Ergasias SA and Alpha Bank SA. Moreover, the strong Q1 June 2011 GDP growth data edged the markets higher. The latest data showed that the Indian economy expanded 7.7% in Q1 June 2011 from a year earlier aided by strong growth in the services sector.
However, food inflation surged to 10.05% in the week ended 20 August 2011, the highest in nearly six months from 9.80% rise in the previous week. The finance minister described this rise as “really disturbing” and raised the possibility of yet another 0.5% rate hike by the central bank in the coming weeks.
Week ahead
We expect the domestic markets to remain weak as inflation is not showing any sign of slowdown which will further prompt the RBI to continue hike rate at its monetary policy review on 16 September. Also better than expectation, Q1 June 2011 GDP data is likely to prompt the RBI to continue hiking interest rates.
Any indication of stress in the global economy will bring back the debt crisis in focus as US and Euro-zone economies still seem fragile. Bargain buying by foreign investors will be crucial to buoy short spells of rally.
Continue suggesting your clients to make investments in good equity schemes to take advantage of the attractive levels. (Also Read: 5 Large-cap Funds worth Investing)
