Rate action concerns looming on markets: Experts

Not for the first time in recent months, the benchmark Nifty has started to drift down soon after reaching the 5,200 level. Equities on Tuesday sold off and the 50-share Nifty index closed at 5,033 down 72 points.

The stock market has consistently failed to break out of its range it has got into after a stupendous six-month rally between March and August that took place on the back of Indian economic recovery after the financial crisis last year.

Even as growth has rebounded, the Indian macro-economic setup is seeing concern on the inflation front with food prices spiralling at 19% growth and the wholesale price index — the broader parameter — also on the rise at close to 4%.

Concerns that the Reserve Bank of India (RBI) may move to withdraw some of the liquidity it had induced into the economy last year to tame inflation, the market has something to worry about, says Jitendra Sriram of HSBC.

"The RBI may wait for trade to pick up but if inflation becomes a further worry, it will take action sooner rather than later. It may choose to withdraw liquidity first in the form of CRR hike and then hike interest rates later," he told CNBC-TV18 in an interview.

Sriram pointed that global clouds could also get darker with a US Fed meeting lined up to discuss the prospects of stimulus withdrawal.

"There has been the fear of rate hikes," said Investment SP Tulsian, "but Tuesday's down move was led by ICICI Bank posting disappointing advance tax numbers."

Sources said ICICI Bank had posted advance tax of about Rs 301 crore versus Rs 625 crore last quarter, signaling that earnings could come in lower. The stock was down Rs 25 (3%) to Rs 825 in a weak market on Tuesday.

Stock/sector view

Banks: If the market corrects from current levels, trader-active financial stocks like ICICI Bank, Axis Bank, IDFC and IFCI would sell off further, Tulsian said.

Real estate: "Property is closely linked to what happens with financials. If interest rates rise, these stocks could face headwinds in the short term," Sriram said. "However, most real estate companies have cleaned up their balance sheets, reduced debt and leverage and that's a good trend."

Telecom: The industry has been facing immense pricing war whose full impact will be felt in the January or April quarter, Sriram said, but added that for the long term, it was pure domestic play. "It is a great consumption proxy and India is one of the market that is still growing. For the longer term, I would be looking at the sector definitely whenever there are meaningful corrections in that space."

Reliance Industries: For the short term, Sriram said Reliance would face pressure both on refining margins and its petrochemical business but longer term, it was a buy.

DB Corp IPO: Tulsian did not view the issue of DB Corp, a media company that publishes the Dainik Bhaskar newspaper, as cheap. "I am not convinced with the discount of Rs 2 offered to retail investors. If I compare this company with that of HT Media and Deccan Chronicle, I find it a bit expensive at Rs 210."

Published on Tue, Dec 15, 2009 at 19:56   |  Updated at Tue, Dec 15, 2009 at 21:14  |  Source : Moneycontrol.com

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