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Strong IIP nos help Sensex buck weak global trend

December 14th, 2007

For a change, the Indian market found strength in its own numbers even as investors in rest of the world showed long faces and vented their anger at the ‘unkind cut’ by Fed chief by pulling down indices. The healthy industrial production numbers for October helped the domestic market buck the trend and keep the 30-share Sensex in the positive zone.

But if you think the good times are going to last, the pessimists among the analysts club beg to differ. These naysayers will have you believe that the growth won’t be sustained in the coming months. But that’s for the analysts to discern. For investors aligned to the bulls, it was another day in the sun.

For the record, the benchmark Sensex closed at record high for the second straight session to 20,375.87, up 84.98 points or 0.42%, after falling as much as 1% in early trade. The Nifty ended at 6159.30, up 62.05 points or 1.02%. Small- and mid-cap indices continued to outperform their frontline counterparts. Gainers outnumbered losers (2,139:750) on BSE.

Shares of software exporters dropped over concerns that the dollar may weaken further against the rupee, with the US economy still facing threats of a recession.

To quote Credit Suisse note on emerging markets, “India’s growth has exhibited a low correlation with that of the US since 2000. However, between 2001 and 2007, the economy has become increasingly open, with the share of exports in GDP doubling to 30%. As a result, exports and real GDP growth are probably more exposed to a sharp downturn in the US than in the past. We estimate that for every 1 percentage point (pp) drop in the US real GDP growth rate, the Indian economy’s pace of growth could slow 0.5-1 pp.”

Most Asian markets dropped sharply on Wednesday, mirroring the fall in the US market on Tuesday, as it was felt that the 25-basis-point cut in the interest rate by the US Fed would not be enough to prevent the world’s largest economy from slipping into a recession.

Analysts said a 50-basis-point cut would have increased the prospect of fresh foreign fund inflows into emerging markets such as India.

The provisional data for foreign institutional investments (FIIs) on Wednesday (after the rate cut) may not be very encouraging for the bulls. FIIs net sold Indian shares worth Rs 385.2 crore, while domestic financial institutions net bought shares of Rs 115.83 crore, according to NSE data.

Indicators in the derivatives segment pointed to a positive undertone on Wednesday, after flashing caution signals on Tuesday. The implied volatility (IV), which reflects expectations about the market’s future volatility, of 6,100 and 6,200 Nifty, puts quoted at lower IVs than that of their corresponding calls.

The fact that even out-of-money-puts had lower IVs than their corresponding calls, suggests that traders no longer feel the necessity to buy puts to hedge their portfolios.

Also, the huge creation of open interest in Nifty December futures coupled with the rise in Nifty December’s premium vis-a-vis S&P Nifty to 30 points, is indicative of a build-up of long positions.

“Despite the stronger data, we judge that industrial output will continue to face head winds from past interest rate hikes, rupee appreciation and softening world demand,” Lehman Brothers’ Sonal Varma, said in a note to clients.

Source:http://economictimes.indiatimes.com/

Entry Filed under: Sensex