India Morning Report: Markets look happy enough for a 7700 close

The dip in core inflation took a long time coming and the score at 8.28% on the composite CPI is still unlikely to make early celebrations of the right turnaround change into a lasting rate cut move or two by the RBI in 2014. However, of lasting value is the April 2014 data for IIP which at 3.4% is nothing less than robust growth and starts in the first month of Q1 FY2015 itself. China in the meanwhile is well adjusted to slower growth and indices at all time lows will remain weak for 2014.

The usual culprits in both Consumer discretionary and Consumer Durables were at hand scoring 7-8% negative growth, the cut probably a result of an Indian gene costing managers’ lack of clear sight till inventories are substantially depleted esp in April at the beginning of a new Fiscal, most probably accustomed to inventory drawdowns in April to allow for a more robust production plan in the coming 11 months. Nevertheless, given the resumption of exports and the jump of Capital Goods data and Utilities (Electricity which is another 10% of the IIP) in double digit levels at 15% and 11% we are probably into the comfortable data watch horizon for India as an Economy and a global market choice.

Yesterday’s new bond auction went well and yields are well on their way down irrespective of rate cut lags which will be a likely feature of this recovery as inflation stays up. WPI is reported in another 3 days and may well be near historic lows having already stayed near 5.5% in the last month. The Housing component of CPI is up for another rerating in the next monthly announcement.

Crude bill may not be substantially impacted, June anyway expected to be a big hit on the Deficit from Oil imports with Indian oil basket safe despite the flare up in Iraq and the inevitable move up of Crude for which the Indian currency seems to have already over corrected at 59 levels.

Banks are finally up after a long hiatus and this should be a big day for the markets with even Consumer discretionary moving up in response to robust demand scenarios and ignoring the April data on IIP.

ICICI Bank, and Yes lead out performers on the bank indices back with HDFC Bank and Kotak also unlikely to be stopped after the new i ching readings from the tea leaves. L&T Finance has completed the move to paring promoter stake to 75% and Kotak is also on target after a block sale last month. Bajaj Auto and Heromoto remain buoyant and the 26000 mark ( unlikely today) will likely be significant for the Indian markets in creating another quick baseline with Nifty above 7600 thru the entire week.

The continuing investigation in the pre OFS insider trading which has meant severe strictures against Factorial, will hopefully net a few more as SEBI strengthens its hands in taking market regulation to a more active deeper level(jeez, rewrite!)

Bond yields will close below 8.5% this week from the bump in data. Dollar will strengthen against the Yen and Euro this week but the Rupee might stay flat.

Power NBFCs are doing well with REC now holding well above 330 cycle highs at 354 levels and weakness in GMR Infra may well keep infraco plays waiting including IDFC which is poised for a grand take off at 130 levels.

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