Weekly Snapshot- Excellent start to the year so far; has RIL spoilt the party?

The week gone by saw the Nifty taking out its near term resistances of 4899 and moving up further. It was the third consecutive week of gains with the Nifty gaining 3.75% W-o-W. Reflecting the positive sentiments, market breadth was positive in three out of the five trading sessions of the week.

Key Events

Indian Markets

India's inflation eased sharply in December. The wholesale price index rose 7.47% in December from a year earlier, compared with November's 9.11% increase, as food prices fell. India's annual food inflation rates for the week ended January 7 continue to hover around negative territory for the third consecutive week at 0.42 percent, due to a sharp dip in the prices of onion, vegetables, potato and wheat, prompting the Reserve Bank of India or RBI to cut interest rates in its monitory policy review next week. India's December exports rose an estimated annual 6.7% to $25 bn, while imports for the month were at $37.8 bn, leaving a trade deficit of $12.8 bn. Exports between April-December rose 25.8% to $217.6 bn. Trade Secretary Rahul Khullar said that that the trade deficit for the full fiscal year that ends in FY12, was estimated between $155 bn to $160 bn. A UN report stated that India's economic growth rate would remain subdued at 7.7% in 2012 and 7.9% in 2013 as downside risks have increased, mainly on account of problems in Europe and the US.

Outlook of the week

The start to the year 2012 from an equity markets perspective has no doubts been an excellent one, however, extrapolating this into linear fashion and thinking that the market would kiss 5500 and then 6000 would only meaning fooling in front of the moving road roller. Especially post the RIL results yesterday and outlook for the company remaining as green as ever, the market and more particularly FII’s and DII’s could particularly remain very ruthless and kill the stock to sub 700 levels in no time. And with that we could be ending the rally or the sustenance change over the next couple of weeks. For a sustenance of the rally we need more firm earnings numbers and not just one off’s since in weak sentiment times any bad news is blown out of proportion exactly the same way the good news is blown in bullish times.

So no time to get carried away and being more alert and opportunist in the current environment is the key to tide and consolidate the position in early 2012 at least. Expect some pressure in the following week and ofcourse some heavy stomach wrenching churn.

Sources:

HDFC Securities Weekly wrap of the Market

Right Horizons Equity Desk for Outlook for the coming week