My Market Diary - 23rd Nov, 2014

The week gone by and what the future holds...

November 24, 2014 8:10 IST | IIFL
The indices scaled new peaks on Friday after remaining confined to a narrow range for the better part of the week. The market seemed deprived of any meaningful buying impetus with FIIs and DIIs hardly clocking major net buys. In fact for the calendar year, FII buying is significantly lower than last year even as markets have soared to record highs. Nifty made new peak on Friday of 8,490 as sentiment was spurred by mega M&A action on Dalal Street. After the 2008 meltdown, the biggest deal in the banking space took place after Kotak Mahindra Bank's acquisition of ING Vysya Bank. The share swap ratio of 750 shares of Kotak Bank for 1000 shares of ING Vysya Bank values the latter at ~Rs165bn, 2.3x its current adjusted networth. The valuation of the transaction seems quite reasonable compared to the previous transactions of HDFC-CBOP and ICICI Bank-BoR which happened at 3-5x book value. 
The results season is now out of the way but there were no major triggers for upward revision of estimates. Excluding BPCL, Nifty earnings saw a modest rise of 5% during Q2 FY15. This was below street expectations with disappointments from cyclical sectors. Strong performance was seen from Telecom, healthcare and financials. Amongst large cap stocks that gave better than expected performance were Bharat Forge, Bank of Baroda, Cummins India, Maruti Suzuki, GAIL, RIL, Tech Mahindra and JSW Steel.
Following a rally since third week of October, warnings about an imminent correction citing overbought levels are getting louder. But any major correction should be bought into. From March 2014, Nifty has witnessed short time corrections and shallow price corrections thus depicting the underlying strength in the current movement. The trend this year has been buying on every dip and the same is likely to continue for a long time to come. The amplitude of the triangle breakout and the breakout projection corresponds to target of 10,300 within 18 months. Bull markets tend to go through period of corrections and consolidation, but the larger trend will continue to remain on the upside.
While inflation both at the retail and wholesale level has been undershooting RBI's expectations, the central bank is unlikely to cut rate in the upcoming monetary policy. Directionally, moderation in inflation was expected due to a high base effect. In our view, inflation trajectory in the period of December 2014 to February 2015 will determine RBI's decision to change its monetary stance. So we believe that first rate cut would only come by March 2015. 

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