Inflation : 13-yr high
Boiling crude and surging commodity prices finally pushed inflation over the dreaded double-digit mark. Inflation for the week-ended June 7 came in at 11.05% as against 8.75% week-on-week. The timing couldn't have been worse for the markets, which has been bogged down for the past three days on political tensions, growth slowdown fears, and tighter policy action to curb inflation.
So, where do experts see the markets headed? Will tighter government action derail markets going ahead?
Enam feels the high inflation figure is due to a huge increase in commodity prices. It expects inflation to be around 10% till August-end. There are worries that Monetary Policy should not overreact to inflation.
Deven Choksey of KR Choksey Securities said a 1% rise in interest is given. He observed that if interest rates remain at a high level, then banks’ yield will be under pressure and it could be a challenge for the banking sector and stocks.
”A 1% rise on interest rates is given, particularly when you see a deposit rate of 8.5% and inflation of 11%; the he gap is now 2.5%. So, 1% should definitely be the increase in rate of interest. Assuming that the interest rate has to go up by a maximum of 2.75% which is unlikely to happen, we did a calculation on the EMI on two-wheelers which comes to around Rs 54 increase on a sum of Rs 40,000 for 36 months. EMI on four-wheeler will increase by Rs 468 per month on 3,50,000 vehicles for 36 months period. This may not impact the auto sector much. But if the interest rates remain at such a high level, banks’ yield will probably be under a lot of pressure. That could be big challenge to the banking sector. That is where we see some of negativism spreading across banking stocks in particular,” he said.
Technical Analyst Sudarshan Sukhani of Techincal Trends said markets are in an intermediate downtrend. He added that he has been advising investors to switch from momentum stocks to blue chips. He also advised investors to stay away from the bear market.
“The longer-term charts were bearish. We were in an intermediate downtrend. Unfortunately, the significant 4,400 level has been breached decisively. So, the picture is not good. We are probably looking at lower levels. There is no support below 4,400. We will have to let the market decide where it wants to stop,” he stated.
According to him, long-term investors have a different problem. “This is a long-term bull market but that would be another 2-5 years later. Switching at this point is not easy. I have been advising investors to switch from momentum stocks or low-grade stocks to blue chips. That is something they must do all the time and redefine their portfolio.”
Portfolio Manager PN Vijay said the inflation figure caught everyone offguard. He added that the number might come back to a reasonable level and not remain double-digit by next week. He advised people to watch the political situation for the next 5-6 days.
“One needs to watch how far the markets fall will go as the inflation caught everybody offguard. This is a spike cost because of an administered price hike. We will come back to more reasonable level by next week and definitely not double-digit. There is a lot of political tension built into this fall. People are factoring in a probable early election. We need to watch out for the next 5-6 days on what is happening on the political situation,” he stated.
Stocks/sectors to be in, in a highly inflationary environment:
He is bullish on State Bank and ICICI Bank. “Pharma and IT are two sectors which are defensive. Even among the stocks that have fallen, it would be a good idea to switch from RNRL to State Bank or even ICICI Bank. These can also fall and they will in a bear market. But, at least, the quality of your holdings will improve.”
Sectors to avoid:
Sukhani commented that the sectors to be avoided are real-estate, capital goods and banks. The real-estate sector has not come out of the woods yet and the charts suggest that there will be lower levels ahead for capital goods, Sukhani said. With respect to banks, they have broken significant support levels. He added that the intermediate investors cannot buy in an intermediate downtrend and only traders can try to catch those 2-3 days moves if possible
Source : MoneyControl
So, where do experts see the markets headed? Will tighter government action derail markets going ahead?
Enam feels the high inflation figure is due to a huge increase in commodity prices. It expects inflation to be around 10% till August-end. There are worries that Monetary Policy should not overreact to inflation.
Deven Choksey of KR Choksey Securities said a 1% rise in interest is given. He observed that if interest rates remain at a high level, then banks’ yield will be under pressure and it could be a challenge for the banking sector and stocks.
”A 1% rise on interest rates is given, particularly when you see a deposit rate of 8.5% and inflation of 11%; the he gap is now 2.5%. So, 1% should definitely be the increase in rate of interest. Assuming that the interest rate has to go up by a maximum of 2.75% which is unlikely to happen, we did a calculation on the EMI on two-wheelers which comes to around Rs 54 increase on a sum of Rs 40,000 for 36 months. EMI on four-wheeler will increase by Rs 468 per month on 3,50,000 vehicles for 36 months period. This may not impact the auto sector much. But if the interest rates remain at such a high level, banks’ yield will probably be under a lot of pressure. That could be big challenge to the banking sector. That is where we see some of negativism spreading across banking stocks in particular,” he said.
Technical Analyst Sudarshan Sukhani of Techincal Trends said markets are in an intermediate downtrend. He added that he has been advising investors to switch from momentum stocks to blue chips. He also advised investors to stay away from the bear market.
“The longer-term charts were bearish. We were in an intermediate downtrend. Unfortunately, the significant 4,400 level has been breached decisively. So, the picture is not good. We are probably looking at lower levels. There is no support below 4,400. We will have to let the market decide where it wants to stop,” he stated.
According to him, long-term investors have a different problem. “This is a long-term bull market but that would be another 2-5 years later. Switching at this point is not easy. I have been advising investors to switch from momentum stocks or low-grade stocks to blue chips. That is something they must do all the time and redefine their portfolio.”
Portfolio Manager PN Vijay said the inflation figure caught everyone offguard. He added that the number might come back to a reasonable level and not remain double-digit by next week. He advised people to watch the political situation for the next 5-6 days.
“One needs to watch how far the markets fall will go as the inflation caught everybody offguard. This is a spike cost because of an administered price hike. We will come back to more reasonable level by next week and definitely not double-digit. There is a lot of political tension built into this fall. People are factoring in a probable early election. We need to watch out for the next 5-6 days on what is happening on the political situation,” he stated.
Stocks/sectors to be in, in a highly inflationary environment:
He is bullish on State Bank and ICICI Bank. “Pharma and IT are two sectors which are defensive. Even among the stocks that have fallen, it would be a good idea to switch from RNRL to State Bank or even ICICI Bank. These can also fall and they will in a bear market. But, at least, the quality of your holdings will improve.”
Sectors to avoid:
Sukhani commented that the sectors to be avoided are real-estate, capital goods and banks. The real-estate sector has not come out of the woods yet and the charts suggest that there will be lower levels ahead for capital goods, Sukhani said. With respect to banks, they have broken significant support levels. He added that the intermediate investors cannot buy in an intermediate downtrend and only traders can try to catch those 2-3 days moves if possible
Source : MoneyControl
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