Markets that was being besieged by myriad of weedy bouts in the preceding month persisted its vogue driven by rippling global markets led by euro-region debt turmoil and bleak set of economic data, that did not miss to bang their domestic counterparts. However, towards the end of the prior month markets cheered on easing crude oil prices that outweighed the concerns of fuel price hike that shall further swell the inflation, easing weekly food inflation number and stout foreign funds inflow that persisted the rally till the expiry of the June series post which indices instigated to take a breather flaking away their returns. Lingering Greece crisis that endured to haunt the equity markets for quite some time subsided on Greece Parliaments vote that approved the five year austerity measures and its implementation. Greek Prime Minister Mr. George Papandreou clinched enough votes to pass the first part of an austerity plan that aimed at meeting European Union aid requirements and staving off default for his debt-laden nation. Greece may receive as much as $124 billion in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis.
The month persevered to witness trepidations on growth and inflation front that the Reserve Bank has been toiling to balance since last year. Murky growth numbers led by high interest cost as a result of towering inflation continued to occupy the centre stage of the economy. Clambering interest cost, curtailed growth projections and rising fuel prices has dampened growth not only in automobile but also industrial and manufacturing segments this month. Impulsive Industrial growth, moderate June 2011 automobile sales amid drop off in growth projections by SIAM and thwart growth in manufacturing reflected by HSBC Purchasing Managers Index amid other sulky episodes on one hand and stout foreign fund inflow, easing crude oil prices, moderating food inflation and affirmative global markets driven by easing Greece debt mayhem and corpulent numbers on manufacturing growth & consumer confidence on the other oscillated the markets in the regions of triumph and hammer.
European crisis has become a full-blown financial implosion. Debt crisis in the Europe continent has been unstoppable. After a bailout for Greece provided recently by European Union and IMF, now Italy and Spain could be on the cards for bailout package. If a disaster scenario comes in, where Italy will have to be bailed out like Greece that may be a major global sovereign crisis and would be a toll on our markets. Markets may persist to be cautious until there is much more clarity in terms of the activities of the ECB. Italy and Spain have been thrown into the mix and they are far bigger in magnitude than Greece, Ireland and Portugal. This could be a true systemic crisis.
India’s industrial growth for May 2011 with the mutated series with 2004-2005 as the base year decelerated at an extremely unconvincing 5.6% equated to an anticipated number of about 8.5%. Industrial growth during April-May 2011 averaged 5.7%, compared to 10.8% in the same period last year. IIP registered even shoddier data as per the old series of index, with a base year of 1993-94, which recorded industrial growth at 3.6% in May, 2011, as against 12.2% in the same month last year. The impassive number may be attributed to bleak performance in the manufacturing sector that accounts for over 75% of the total weight in the index.
The shoddy growth number is unlikely to transmute Reserve Bank’s rate hike raid in the upcoming policy meet on 26th July 2011 that it has been pursuing to docile the inflationary pressure that has been denting the markets worldwide. Monthly WPI for the month of June 2011 continued to swell above the 9% mark at 9.44% against 9.06% in May 2011 and 10.25% during the corresponding month of the previous year, post the fuel price hike effected by the government on June 24 that has 14.91% weightage in the WPI index. The Government has revised upwards inflation rate for April to 9.74% from the provisional reading of 8.66%. The index for primary articles parked at 12.22% compared to 11.30% last month, and the fuel & Power index for June grew at 12.85% against 12.32% last month. Manufacturing Products that has 64.97% weightage in the WPI escalated at 7.43% versus 7.27% last month.
The government hiked the prices of diesel, LPG and kerosene along with some duty modifications as an attempt to ease the growing burden of under recoveries on the oil marketing companies. The Government announced a Rs 3 per litre hike in diesel, Rs 50 per cylinder increase in domestic LPG and Rs 2 per litre raise in kerosene rates. Also, it slashed the import duty on petrol and diesel by 5 per cent, did away with the import duty on crude oil and reduced the excise duty on diesel to Rs 2 per litre from Rs 4.60 a litre.
With ten consecutive rate hikes and even more anticipated on cards, dearer cost of funds, surging fuel rates and dismal economic outlook auto sector echoed moderate growth and curtailed projections by Society of Indian Automobile Manufacturers (SIAM). Car sales that seemed to have hit a speed breaker, rose by a meager 1.6% in June 2011 at 143370 units against 141086 units in June 2010, the slowest pace of growth in more than two years, and this from a sector which was growing at a break neck speed of over 30% in the first half of FY11. Maruti Suzuki, the market leader in the car segment reported dip in sales by 8.8% in June 2011 led by production loss due to the major strike at its plant that affected the entire industry’s performance. Tata Motors’ sales were also down by a percentage point. SIAM curbed its sales growth forecast for the sector in the current financial year to 11-13%, from the earlier projection of 12-15%.
Reshuffling of the Cabinet by Prime Minister, Mr. Singh who retained his key allies, was more of cosmetic changes rather than a comprehensive measure that would have profound influence on the operation of the government. Mr. Singh restructured the cabinet in a bid to help him fight accusations of corruption and policy paralysis. The Prime Minister reshuffled his Cabinet and now has eight new faces in his team. The top four ministries have been left untouched but Jayanti Natarajan came in as Environment Minister after Jairam Ramesh was elevated to the Rural Development Ministry and Salman Khurshid will be the new Law Minister. The reshuffle might be seen as a positive for the market or for India Inc. It perhaps indicated that probably we might be having the faster clearances of the mines etc and the environment will not be such a big threat.
First quarter earnings has started trickling in with Infosys Technologies that reported sequential drop in its net profit by 5.4% for the quarter and growth of 15.72% on an yearly basis. The market is overtly perturbed about the drop in its guidance for FY12. IT bellwether expects EPS at Rs 128.20-130 and revenues at Rs 31,777-32,311 crore for FY12. In dollar terms, the company sees EPS growth of 10-11.5 to USD 2.88-2.92 for FY12. For the quarter ending September 2011, Infosys expects revenues at USD 1.73-1.755 billion and EPS of USD 0.67-0.68, a growth of 3.1-4.6%.The numbers however were slightly below estimates.
Going ahead markets would watch out for the earnings of corporates given the high inflationary apprehensions that has led to higher interest burden that is likely to weigh on the margins of the companies. Reserve bank’s stance on growth and inflation restrain would be eyed on July 26th. RBI however is likely to continue with its anti-inflationary move in the forthcoming policy despite subdued growth. Foreign fund inflow would be a primary determinant of the Indian markets vogue. Global markets that has been rippling under debt trepidation, clambering inflation and mixed set of economic data would be looked upon for domestic stance. Steps that shall be taken to contain the contagious European debt crisis would be keenly watched out by market participants world-wide. With the horde of such uncertain upcoming events and murky set of lingering and fresh trepidations on the global, domestic and political wings—the markets might continue to flutter.
