June seasonality: How BSE Sensex has moved in past 20 years

Riken Mehta
Moneycontrol.com

Traditionally, May has not been the best of month for equity investors, with the market declining more often than it has risen. But June seems to be the exact opposite. In last 20 years, the BSE Sensex has risen 14 times in June. This could partly be due to the pessimism in May, and the subsequent covering of short positions. But things don't look too bright for Indian equities this June.

The HSBC Manufacturing Purchasing Managers' Index (PMI) for May declined for the third successive month to hit a 50-month low of 50.1, and the widely held view is that economic recovery could be slower than what was expected.

The rupee is under pressure, political uncertainty looks likely to persist, and there are questions about the continuation of US Federal Reserve’s loose monetary policy, which has been driving the rally in emerging market equities.

Four key events to watch out next week- Infosys, IIP, Trade Balance, Indian Rupee

Riken Mehta
Moneycontrol.com

It has been a bearish start to the first week of the new financial year, with the Sensex lighter by 400 points. The weakness spread to large caps as foreign-owned exchange traded funds are said to have been net sellers of equities, faced with redemption requests from their unitholders in home markets. This has further undermined sentiment, already weighed down by political uncertainty and a slowing economy.

US and Japanese shares are trading at multi-year highs and key European markets have stabilized after the initial nervousness over the bail-out of Cypriot banks.

Investors will now turn their attention to four key events next week.

1. April 10: Trade Balance Data - March

The trade balance data which is the net figure of India’s exports and imports for March, will signal how the annual current account deficit numbers will shape up for FY13. The current account deficit number hit a record high of 6.7 percent of GDP in the October-December quarter, driven mainly by huge trade deficit. The market will closely monitor this figure.

2. Indian Rupee

Another key variable to track will be the rupee. The currency, trading at one-month low, is unable to take advantage of gold prices fallen to a 10-month low. Gold import is one of the prime factors for record-high current account deficit. The other import constituent, Brent crude is trading close to $106.50 per barrel, a fresh five-month low.

3. April 12: Index of Industrial Production (IIP) - February

Index of Industrial Production (IIP) numbers for the month of February will be announced. The eight core industries growth, accounting for 38 percent of the IIP, contracted 2.5 percent in February, a record low performance in decades which should prepare the market for some depressing data. The IIP numbers for January was 2.4 percent, higher than the 1.2 percent estimated by a CNBC-TV18 poll.

4. April 12: Infosys - Fourth Quarter Earnings

Infosys  will announce its fourth quarter numbers on April 12 and set the tone for the near term movement in IT shares. Angel Broking expects former IT bellwether’s EBITDA margins to decline by 91 basis points quarter-on-quarter to 27.6 percent, because of wage hike of 2-3% to onsite employees. The annual guidance for FY14 will be the deciding factor.

Chart of the day: Why RBI is not fighting the slide in the rupee

Riken Mehta
Moneycontrol.com

One of the reasons for the rupee sliding sharply against the dollar is the Reserve Bank of India’s reluctance to support the rupee by selling dollars, like it usually does during periods of volatility. And there is good reason, why the RBI is avoiding what could well turn out to be a losing battle. As can be seen from the chart, India’s import cover--the number of months of imports that can be paid for by a country's forex reserves - is at a 12-year low. The import bill has soared in the last few years, but forex reserves have not kept pace.

The import cover is calculated by taking the absolute annual import figure and then divide it by 12 months to get the average monthly import. Divide forex reserves at the end of the same period (Financial year end in this case) by average monthly import to get the import cover ratio.

For FY12, the import cover ratio is 7.2 months. It means that India has forex reserves to cover only the next 7 months of FY13, assuming the imports remain the same at USD 40.7 billion.

For chart, Click on the attachment

Chart of the day: Rupee falling, but FIIs not dumping stocks this time

Riken Mehta
Moneycontrol.com

Unlike on previous occasions in the last four years, the sharp depreciation in the rupee since January this year has not been accompanied by huge foreign fund outflows.

Foreign investors usually sell Indian shares whenever the rupee weakens as the value of their portfolio declines. This then sets off a vicious cycle as FII selling weakens stock prices and could trigger more pre-emptive selling by other foreign funds, which adds to the pressure on the rupee and then sets off the same cycle again.

So why are FIIs not selling shares heavily this time?

One explanation is that most short term players have already got out and the funds which invested in January and February are long term players. The other explanation, conspiracy theory if you may call it, is that a big chunk of black money stashed abroad would have come back to India for good.

Time Frame: Jan 2008 to May 2012