Markets opened lower tracking weak Asian peers and investors turning to the sidelines ahead of April inflation data. The S&P CNX Nifty dipped 20 points, at 5525 and the Sensex was down 92 points, at 18, 440
The April inflation reading is expected to affect the Reserve Bank of India’s decision on rate hike. Reuters poll has predicted April Whole Sale Price Index at 8.58%. The inflation bias may remain on the upside after India’s state run gasoline companies raised prices by Rs 5 per litre soon after United Progressive alliance (UPA) and its allies won elections in three out of five states on Friday.
Analysts expect Indian markets to remain weak as Nifty has formed a bearish head on should pattern on the daily charts which indicates a major reversal in the bullish trend.
Most of the Asian markets were also trading in the red in the morning trades as sell-off in commodities weighed on resource shares.
Hong Kong's Hang Seng fell 0.4% led by losses in banking shares. Investors veered away from risky assets as the Dollar strengthened. Euro-zone debt worries also affected investor sentiment. China's Shanghai Composite index was trading flat at 2,869. The Nikkei Stock Average slipped 0.6% as rising yen weighed on exchange rate sensitive stocks. South Korea's Kospi Composite was down 0.6%, Singapore's Strait Times edged lower by 0.9% and Taiwan's weighted index was off 0.4%.
Among individual stocks, oil marketing companies were leading the gains. Bharat Petroleum and Hindustan Petroleum surged 2% each after they raised petrol prices by Rs 5 per litre. Suzlon rallied 4% after the fifth largest turbine maker reported 20% jump in fourth quarter net profit. Glenmark rallied 8% after it signed a licensing deal with Sanofi which has marketing rights in Japan, USA and Europe.
BSE Healthcare index was leading the gains, up 1.3%. Besides Glenmark Pharma, Ranbaxy advanced 2.1%, Lupin zoomed
2% and Sun Pharma was up 1.9%.
Auto shares were leading the losses, BSE auto index slipped 1.2%. Maruti Suzuki, Bajaj Auto and Cummins India all fell over 1% each.
Only four shares on the Sensex were trading in the green, BHEL advanced 0.8%, TCS was up 0.9% and Reliance Communication gained 0.4%. Top losers were Mahindra & Mahindra, down 1.8%, ICICI Bank was off 0.4% and Tata Motors
declined 1.3%.
Broader markets were flat. Market breadth was negative, 749 stocks advanced for 833 stocks which declined.
Sunday, May 15, 2011
Higher income and inflation drive up credit card spends
MUMBAI: Indian consumers have started using their credit cards more often than before, driven by higher income . Soaring inflation has no doubt pushed up card spend, but even the number of transactions has increased, albeit a falling base. The latest official data puts the total number of transactions in March at 2.3 crore on a card base of 1.8 crore.
In April 2009, the total number of transactions was 1.5 crore on a card base of 2.4 crore. The rise in the total value of spend is also a reflection of soaring prices. "There is action again in the credit cards business. The focus this time is on higher value segment," said Shamal Saxena , head of credit cards business at Standard Chartered Bank .
"Almost 20% of our new card customers are non-bank customers and we add 80,000-90,000 new cards per month," said Parag Rao, head of credit cards, HDFC Bank . Lenders who held back from issuing credit cards to non-account holders are back in the game, though cautiously. This is reflected in the decline in the total number of cards outstanding, which does not include those withdrawn or blocked, to 1.8 crore as on end March 2011 from 2.8 crore in March 2008.
It could also mean that banks are not pursuing renewal of cards that have expired, a phenomenon common in the pre-crisis period. The slowdown following the global financial crisis of 2008 forced many banks to go slow on their credit card business.
Card overdues, or payments owed to banks beyond due date, was about 43% of the total card spend in 2008-09 fell to 24% in 2010-11, according to RBI data. Industry estimates show that non-performing loans under credit cards rose to as high as 20% in 2009-10.
In April 2009, the total number of transactions was 1.5 crore on a card base of 2.4 crore. The rise in the total value of spend is also a reflection of soaring prices. "There is action again in the credit cards business. The focus this time is on higher value segment," said Shamal Saxena , head of credit cards business at Standard Chartered Bank .
"Almost 20% of our new card customers are non-bank customers and we add 80,000-90,000 new cards per month," said Parag Rao, head of credit cards, HDFC Bank . Lenders who held back from issuing credit cards to non-account holders are back in the game, though cautiously. This is reflected in the decline in the total number of cards outstanding, which does not include those withdrawn or blocked, to 1.8 crore as on end March 2011 from 2.8 crore in March 2008.
It could also mean that banks are not pursuing renewal of cards that have expired, a phenomenon common in the pre-crisis period. The slowdown following the global financial crisis of 2008 forced many banks to go slow on their credit card business.
Card overdues, or payments owed to banks beyond due date, was about 43% of the total card spend in 2008-09 fell to 24% in 2010-11, according to RBI data. Industry estimates show that non-performing loans under credit cards rose to as high as 20% in 2009-10.
'Consumer' stocks to drive market in the long term
MUMBAI: Sundaram Mutual Fund will focus on defensive sectors in the near term as high inflation, rising interest rates, and growth concerns continue to weigh on the Indian stock market.
The fund house, which manages assets worth more than Rs 14,500 crore, has trimmed its exposure to energy, financial services, and utility companies as the Reserve Bank of India's (RBI) aggressive rate stance to fight soaring inflation will dent profit margins of these sectors, said Srividhya Rajesh, vice-president equity, Sundaram Asset Management.
"We're sticking to defensive stocks...Inflation, growth worries, and high commodity prices will weigh on the market. However, we don't expect a deep correction," said Srividhya, who manages about.`1,200-crore assets for Sundaram Capex Opportunities and Sundaram Select Focus funds. Defensive stocks remain stable in various phases of business cycle. During recession they tend to perform better than the market.
However, during an expansion phase they perform below the market. Defensives include sectors such as pharmaceutical, consumer staple, and agro-products. Consumer-oriented sectors will lead the market rally in years to come driven by rising salaries and increased spending, Srividhya said.
"We're bullish on auto, FMCG, and telecom companies. Though sensitive to rates, some of the topline banks look good as they have corrected recently," she said. Sundaram Select Focus Fund, a large-cap fund with assets of more than Rs 899 crore, posted a one-year return of 3.12% against 9% gained by the Sensex during the same period. Large-cap funds, on an average, returned 7.3%, as per fund tracker Value Research.
The fund increased holdings in Infosys Technologies , Larsen & Toubro , ICICI Bank , State Bank of India , ITC , Bharti Airtel , and Tata Motors . It has reduced exposure to Reliance Industries, Tata Consultancy Services , Cipla and Sun Pharmaceuticals.
Sundaram Capex Opportunities, an infrastructure fund with assets worth Rs 350 crore, yielded a negative return of 12% over oneyear period. ET Construction Index, a compilation of infrastructure companies, has fallen over 16% over the past one year. The index - comprising stocks such as Jaiprakash Associates , Lanco Infratech, Reliance Infratel and BHEL - have fallen 15-45% in one year.
"Rising interest rates is not good news for companies operating in the core sector," said Srividhya. "Disappointing order flows are another problem faced by infrastructure companies. Growth has been slashed for most infrastructure companies. Higher capacities, lower utilisation will put pressure on profit margins of these companies. We're expecting a turnaround only when order flows turn normal," she said. Lack of government spending in infrastructure is also a problem for infrastructure companies, she said.
"The government has become more of an activist; the focus now is more on environment and less on development. There is a need for balance between development and sustainable ecology," she said. She emphasised that India needs to tap natural resources and rely less on imports.
"It is not in the interest of countries with huge deficits to import natural resources," she said. Rising global coal prices will impact earnings of Indian companies, she said. Shortage of dedicated wagons and rail corridors for evacuating coal will also cause problems. Coal prices have gone up to $330 per tonne from $225 per tonne in the last six months.
Coal accounts for more than half of India's power generation. Environmental clearances and low investment are posing hurdles for domestic coal production that supplies most of the coal consumed. Indian coal producers are increasingly depending on imports to meet the shortfall. Srividhya sees earnings of Indian companies declining 2-3% in fiscal 2011-12 due to rising input cost. "We've seen a decline in growth of large companies... smaller companies are still better off. But there is no reason for big worries as Indian companies have good surpluses," she said.
India's gross domestic product growth is likely around 8% this fiscal, she said. "The RBI is trying to contain inflation by raising rates. This should have an impact on overall growth. In fact, the RBI is trying to apply brakes on growth temporarily to avoid overheating. As a result of consecutive tightening, GDP growth this year will not exceed 8%," she said.
The fund house, which manages assets worth more than Rs 14,500 crore, has trimmed its exposure to energy, financial services, and utility companies as the Reserve Bank of India's (RBI) aggressive rate stance to fight soaring inflation will dent profit margins of these sectors, said Srividhya Rajesh, vice-president equity, Sundaram Asset Management.
"We're sticking to defensive stocks...Inflation, growth worries, and high commodity prices will weigh on the market. However, we don't expect a deep correction," said Srividhya, who manages about.`1,200-crore assets for Sundaram Capex Opportunities and Sundaram Select Focus funds. Defensive stocks remain stable in various phases of business cycle. During recession they tend to perform better than the market.
However, during an expansion phase they perform below the market. Defensives include sectors such as pharmaceutical, consumer staple, and agro-products. Consumer-oriented sectors will lead the market rally in years to come driven by rising salaries and increased spending, Srividhya said.
"We're bullish on auto, FMCG, and telecom companies. Though sensitive to rates, some of the topline banks look good as they have corrected recently," she said. Sundaram Select Focus Fund, a large-cap fund with assets of more than Rs 899 crore, posted a one-year return of 3.12% against 9% gained by the Sensex during the same period. Large-cap funds, on an average, returned 7.3%, as per fund tracker Value Research.
The fund increased holdings in Infosys Technologies , Larsen & Toubro , ICICI Bank , State Bank of India , ITC , Bharti Airtel , and Tata Motors . It has reduced exposure to Reliance Industries, Tata Consultancy Services , Cipla and Sun Pharmaceuticals.
Sundaram Capex Opportunities, an infrastructure fund with assets worth Rs 350 crore, yielded a negative return of 12% over oneyear period. ET Construction Index, a compilation of infrastructure companies, has fallen over 16% over the past one year. The index - comprising stocks such as Jaiprakash Associates , Lanco Infratech, Reliance Infratel and BHEL - have fallen 15-45% in one year.
"Rising interest rates is not good news for companies operating in the core sector," said Srividhya. "Disappointing order flows are another problem faced by infrastructure companies. Growth has been slashed for most infrastructure companies. Higher capacities, lower utilisation will put pressure on profit margins of these companies. We're expecting a turnaround only when order flows turn normal," she said. Lack of government spending in infrastructure is also a problem for infrastructure companies, she said.
"The government has become more of an activist; the focus now is more on environment and less on development. There is a need for balance between development and sustainable ecology," she said. She emphasised that India needs to tap natural resources and rely less on imports.
"It is not in the interest of countries with huge deficits to import natural resources," she said. Rising global coal prices will impact earnings of Indian companies, she said. Shortage of dedicated wagons and rail corridors for evacuating coal will also cause problems. Coal prices have gone up to $330 per tonne from $225 per tonne in the last six months.
Coal accounts for more than half of India's power generation. Environmental clearances and low investment are posing hurdles for domestic coal production that supplies most of the coal consumed. Indian coal producers are increasingly depending on imports to meet the shortfall. Srividhya sees earnings of Indian companies declining 2-3% in fiscal 2011-12 due to rising input cost. "We've seen a decline in growth of large companies... smaller companies are still better off. But there is no reason for big worries as Indian companies have good surpluses," she said.
India's gross domestic product growth is likely around 8% this fiscal, she said. "The RBI is trying to contain inflation by raising rates. This should have an impact on overall growth. In fact, the RBI is trying to apply brakes on growth temporarily to avoid overheating. As a result of consecutive tightening, GDP growth this year will not exceed 8%," she said.
Now, Pranab hints at diesel price hike
KOLKATA: Diesel, LPG and kerosene prices may also go up shortly, finance minister Pranab Mukherjee hinted in Kolkata on Sunday.
The UPA government had kept fuel price rise in abeyance keeping in mind the five state assembly elections. Petrol prices were increased by Rs 5 per litre just after the election results were declared.
Pranab said an empowered group of ministers (EGOM) headed by him would decide on the price rise when it meets next week.
He said the government has no control over petrol prices since they had been deregulated in June 2010. ''Oil marketing companies decide petrol prices. The state-run oil companies hiked petrol prices by Rs 5 a litre on Saturday. For other petroleum products like diesel, LPG and kerosene there is the empowered GOM,'' he said.
The finance minister said petroleum prices were increased last time when it was $68 per barrel. ''But now it is at $110 per barrel. A subsidy of Rs 26 was given on a litre of kerosene, Rs 16 on a litre of diesel and Rs 320 per LPG cylinder,'' he said.
The UPA government had kept fuel price rise in abeyance keeping in mind the five state assembly elections. Petrol prices were increased by Rs 5 per litre just after the election results were declared.
Pranab said an empowered group of ministers (EGOM) headed by him would decide on the price rise when it meets next week.
He said the government has no control over petrol prices since they had been deregulated in June 2010. ''Oil marketing companies decide petrol prices. The state-run oil companies hiked petrol prices by Rs 5 a litre on Saturday. For other petroleum products like diesel, LPG and kerosene there is the empowered GOM,'' he said.
The finance minister said petroleum prices were increased last time when it was $68 per barrel. ''But now it is at $110 per barrel. A subsidy of Rs 26 was given on a litre of kerosene, Rs 16 on a litre of diesel and Rs 320 per LPG cylinder,'' he said.
Saturday, May 14, 2011
Can New Delhi's economic diplomacy change India's business profile in Africa?
If Africa is a beautiful woman being courted by the rest of the world, India is a childhood sweetheart who is a good-natured, hesitant suitor. Touchingly solicitous, yet frustratingly distant, India is a bundle of contradictions.
In the past few weeks, in the lead-up to the India-Africa Forum summit in Addis Ababa from May 20 to May 26, India's reticence has receded into the background. Instead, what we have is a serenading of Africa by the world's largest democracy.
An example of the fervour that has gripped the government now is the amount of attention and money it is spending sending teams of journalists from India on trips to Africa. Three groups have been to different parts of the continent for about two weeks each and the foreign ministry is looking for suggestions to deepen media interaction between India and Africa. For now, there is an impression of deep involvement in the relationship.
This correspondent, who was in Senegal, Ghana and Nigeria as part of a government-sponsored team, found that goodwill for India is unquestionable. There is a feeling that India and Africa are kindred souls. "India makes us feel at ease; it respects us and supports us," says Maitre Madicke Niang, the foreign minister of Senegal, a west African nation with a population of about 12 million.
It is in Senegal that India has scored one of its biggest successes as it competes with other developed and emerging economies for Africa's market and mineral and oil resources. An Indian-led consortium is turning around Industries Chimiques du Senegal (ICS), a former state-owned company that owns one of the world's biggest phosphate mines and a plant making phosphoric acid for use in fertilisers.
Nominally, Iffco is described as the driving force behind the consortium but the public sector cooperative is actually the main consumer of the phosphoric acid and only a minor shareholder in ICS, which contributes about 2% to the Francophone nation's GDP of nearly $13 billion (Rs 58,000 crore). The major owner is the low-profile Archean Group, a Chennai-based company that also has interests in Indonesia, China and Dubai.
It is nimble-footed companies like Archean, not resource-hungry state-run enterprises, that are transforming business relationships in Africa. The government, for all its good intentions, is a step behind even as it facilitates Indian business and helps Africa.
One such sincere and ambitious initiative is the Pan African e-Network Project to use Indian expertise in telecommunications to bring top-class education and health care to the rural parts of Africa. Conceived by the former president APJ Abdul Kalam, the network links many of India's best universities and hospitals to Africa, allowing the continent access to expertise it would not have otherwise had.
While India's intentions have been noble, the benefits of the pan-African network are not being utilised fully: only 311 telemedicine consultations took place until March. JL Kachroo, the project's director in Senegal, says this is because many doctors in African nations think it is a slight to be advised by their Indian peers. In Nigeria, too, the network is underutilised, prompting high commissioner Mahesh Sachdev to urge Nigeria's foreign minister Odien Ajumogobia to make better use of the infrastructure.
In the past few weeks, in the lead-up to the India-Africa Forum summit in Addis Ababa from May 20 to May 26, India's reticence has receded into the background. Instead, what we have is a serenading of Africa by the world's largest democracy.
An example of the fervour that has gripped the government now is the amount of attention and money it is spending sending teams of journalists from India on trips to Africa. Three groups have been to different parts of the continent for about two weeks each and the foreign ministry is looking for suggestions to deepen media interaction between India and Africa. For now, there is an impression of deep involvement in the relationship.
This correspondent, who was in Senegal, Ghana and Nigeria as part of a government-sponsored team, found that goodwill for India is unquestionable. There is a feeling that India and Africa are kindred souls. "India makes us feel at ease; it respects us and supports us," says Maitre Madicke Niang, the foreign minister of Senegal, a west African nation with a population of about 12 million.
It is in Senegal that India has scored one of its biggest successes as it competes with other developed and emerging economies for Africa's market and mineral and oil resources. An Indian-led consortium is turning around Industries Chimiques du Senegal (ICS), a former state-owned company that owns one of the world's biggest phosphate mines and a plant making phosphoric acid for use in fertilisers.
Nominally, Iffco is described as the driving force behind the consortium but the public sector cooperative is actually the main consumer of the phosphoric acid and only a minor shareholder in ICS, which contributes about 2% to the Francophone nation's GDP of nearly $13 billion (Rs 58,000 crore). The major owner is the low-profile Archean Group, a Chennai-based company that also has interests in Indonesia, China and Dubai.
It is nimble-footed companies like Archean, not resource-hungry state-run enterprises, that are transforming business relationships in Africa. The government, for all its good intentions, is a step behind even as it facilitates Indian business and helps Africa.
One such sincere and ambitious initiative is the Pan African e-Network Project to use Indian expertise in telecommunications to bring top-class education and health care to the rural parts of Africa. Conceived by the former president APJ Abdul Kalam, the network links many of India's best universities and hospitals to Africa, allowing the continent access to expertise it would not have otherwise had.
While India's intentions have been noble, the benefits of the pan-African network are not being utilised fully: only 311 telemedicine consultations took place until March. JL Kachroo, the project's director in Senegal, says this is because many doctors in African nations think it is a slight to be advised by their Indian peers. In Nigeria, too, the network is underutilised, prompting high commissioner Mahesh Sachdev to urge Nigeria's foreign minister Odien Ajumogobia to make better use of the infrastructure.
Index Outlook: Market in a state of flux
It was a dull and lacklustre week on the stock market with the Sensex ending almost flat after treading water for most part. The meltdown in commodity prices and the pending decision on fuel price hike influenced movement in the early part of the week. The results of the Assembly elections buoyed the sentiments on Friday as the trading fraternity decided that it has positive implications for the ruling UPA.
Volumes were very low in the early part of the week though it picked up towards the weekend. Surprisingly, FIIs were buying selectively in the early part of the week but they turned net sellers on Friday, the day the Sensex bounced 200 points. Open interest is edging higher towards Rs 1, 40,000 crore. The index put call ratio below 1 suggests that the mood is veering towards the positive with most bears closing their shorts at these levels.
Commodity prices and economic data will be closely tracked next week too to give some direction to stock prices. Some relief can be expected with the onset of monsoon towards the end of May. Corporate results trickling in will also make up an interesting side-show.
Oscillators in the daily chart are moving sideways but in the negative zone. The 10-week rate of change oscillator is critically positioned on the zero line, on the verge of declining in to the bearish region. Weekly relative strength index is also moving deeper in to bearish zone. Interestingly, oscillators in the monthly chart are also pointing lower while perched in the neutral zone.
This implies that if the index moves any lower from current levels, the long-term picture could also get impacted negatively. The sideways move recorded last week has not altered the short and medium-term trend in the index. Both the short as well as the medium-term trends in the index are currently down
As we have been explaining over the past few weeks, the medium-term trend in the index appears weak since it is possible that the third leg of the down-move from November 2010 peak is currently unfolding. This wave has the targets of 17,761 and then 16,493. A strong move above 19,800 is needed to make the medium-term view positive and pave the way for rally to the previous lifetime high.
The sideways move being witnessed since May 5 appears to be a pause in the short-term trend that commenced at the April peak of 19,811. Immediate resistances for the index are at 18,747, 19,005 and 19,109. The Sensex is yet to move beyond even the first resistance. If it struggles to do so next week as well, there is the possibility of a sharp decline to 17,792 or 17,774. If this zone is crossed, the next target zone for the index is between 17,300 and 17,450.
In other words, the odds are currently piled in favour of the bears and it appears a little too soon to presume that a bottom is in place. Investors can start buying only on an emphatic close above 19,100.
Nifty (5,544.7)
Nifty too whipsawed in a narrow band last week before ending the week seven points lower. The medium-term view on the index remains unaltered. It is highly likely that the third leg down from the peak of 6,338 is in progress. This wave can take the index down to 5,332 or 4,954. This view will be negated only on a firm close above 5,950.
Short-term resistances are at 5,638, 5,690 and 5,743. If the index continues to struggle to move above the first resistance, it would be a cue for initiating fresh short positions. It is, however, possible that the index remains in this sideways range for few more sessions before making the next move. Therefore, it would also be more prudent to wait for a move below 5,440 before initiating fresh short positions.
Short-term downward target is 5,348. Since the target coincides with the March 21 trough, traders should watch out with short positions around this level.
Global Cues
Global benchmarks continued to be volatile led by another bout of selling in commodity prices. Most indices extended the losses recorded in the previous week. CBOE volatility index did not move past the resistance at 19 but it did not decline sharply either, implying that traders were not too worried about a meltdown just yet.
European stocks were weak due to the ongoing troubles in Greece. DJ Euro STOXX 50 ended 58 points lower implying that the medium-term correction that began in February continues to be in force.
Most Asian indices however recovered from lower levels to close slightly in the green.
The Dow was also choppy, moving in a range between 12,540 and 12,800. The short-term correction that began on May 2 continues to be in force and can drag the index lower to the zone between 12,350 and 12,400. The short-term trend will turn negative only if the index closes below this zone. The medium-term uptrend will be under threat on close below 11,640.
The dollar index traded continued to make headway. It faces key hurdle at 76.3 that is just ahead. Close above this level will imply that a sustainable medium-term bottom has been formed at 72.86 and that is not good news for commodity prices or for the emerging market equities.
Volumes were very low in the early part of the week though it picked up towards the weekend. Surprisingly, FIIs were buying selectively in the early part of the week but they turned net sellers on Friday, the day the Sensex bounced 200 points. Open interest is edging higher towards Rs 1, 40,000 crore. The index put call ratio below 1 suggests that the mood is veering towards the positive with most bears closing their shorts at these levels.
Commodity prices and economic data will be closely tracked next week too to give some direction to stock prices. Some relief can be expected with the onset of monsoon towards the end of May. Corporate results trickling in will also make up an interesting side-show.
Oscillators in the daily chart are moving sideways but in the negative zone. The 10-week rate of change oscillator is critically positioned on the zero line, on the verge of declining in to the bearish region. Weekly relative strength index is also moving deeper in to bearish zone. Interestingly, oscillators in the monthly chart are also pointing lower while perched in the neutral zone.
This implies that if the index moves any lower from current levels, the long-term picture could also get impacted negatively. The sideways move recorded last week has not altered the short and medium-term trend in the index. Both the short as well as the medium-term trends in the index are currently down
As we have been explaining over the past few weeks, the medium-term trend in the index appears weak since it is possible that the third leg of the down-move from November 2010 peak is currently unfolding. This wave has the targets of 17,761 and then 16,493. A strong move above 19,800 is needed to make the medium-term view positive and pave the way for rally to the previous lifetime high.
The sideways move being witnessed since May 5 appears to be a pause in the short-term trend that commenced at the April peak of 19,811. Immediate resistances for the index are at 18,747, 19,005 and 19,109. The Sensex is yet to move beyond even the first resistance. If it struggles to do so next week as well, there is the possibility of a sharp decline to 17,792 or 17,774. If this zone is crossed, the next target zone for the index is between 17,300 and 17,450.
In other words, the odds are currently piled in favour of the bears and it appears a little too soon to presume that a bottom is in place. Investors can start buying only on an emphatic close above 19,100.
Nifty (5,544.7)
Nifty too whipsawed in a narrow band last week before ending the week seven points lower. The medium-term view on the index remains unaltered. It is highly likely that the third leg down from the peak of 6,338 is in progress. This wave can take the index down to 5,332 or 4,954. This view will be negated only on a firm close above 5,950.
Short-term resistances are at 5,638, 5,690 and 5,743. If the index continues to struggle to move above the first resistance, it would be a cue for initiating fresh short positions. It is, however, possible that the index remains in this sideways range for few more sessions before making the next move. Therefore, it would also be more prudent to wait for a move below 5,440 before initiating fresh short positions.
Short-term downward target is 5,348. Since the target coincides with the March 21 trough, traders should watch out with short positions around this level.
Global Cues
Global benchmarks continued to be volatile led by another bout of selling in commodity prices. Most indices extended the losses recorded in the previous week. CBOE volatility index did not move past the resistance at 19 but it did not decline sharply either, implying that traders were not too worried about a meltdown just yet.
European stocks were weak due to the ongoing troubles in Greece. DJ Euro STOXX 50 ended 58 points lower implying that the medium-term correction that began in February continues to be in force.
Most Asian indices however recovered from lower levels to close slightly in the green.
The Dow was also choppy, moving in a range between 12,540 and 12,800. The short-term correction that began on May 2 continues to be in force and can drag the index lower to the zone between 12,350 and 12,400. The short-term trend will turn negative only if the index closes below this zone. The medium-term uptrend will be under threat on close below 11,640.
The dollar index traded continued to make headway. It faces key hurdle at 76.3 that is just ahead. Close above this level will imply that a sustainable medium-term bottom has been formed at 72.86 and that is not good news for commodity prices or for the emerging market equities.
Investments in gold, silver a safe bet in the long-term: Analysts
Precious metals have gained popularity as investment options over the last few years, as they have yielded attractive returns. Global commodities in general are going through profit booking since the last few weeks. The prices of gold and silver have also come down from their peaks. Silver has been through a deeper correction as it had gone up quite sharply.
Analysts believe prices in the commodity markets had gone into the over-brought zone and a correction was long due. The prices had gone way above their justified fundamentals. The short-term outlook for precious metals is uncertain, but analysts believe the long-term outlook is bullish due to several factors that influence the prices of precious metals in the international markets.
Safe haven
Investments in precious metals are believed to be a safe haven with respect to the global uncertainties. Although the world economy has come out of the slowdown, there are many uncertain and grey areas still.
The governments of developed countries have mounted huge debts due to large stimulus packages they promoted during the economic slowdown. The demand for precious metals is expected to remain intact in the short to medium terms. This will keep the investment outlook bullish for these instruments.
Increase in demand
The demand for precious metals has increased significantly over the last few years. The new avenues of demand are coming from small investors, hedge funds as well as central governments of various countries. This demand is in addition to the existing demand from the industrial sector and jewellery segment.
On the other hand, the supply of precious metals has not caught up in line with the increase in demand. The higher demand for precious metals is expected to keep the outlook bullish in the medium to long terms.
Trading activity
Speculation and trading is a prime factor driving the volatile price movements in precious metals. Many investors are trading in precious metals in the physical as well as derivative markets .
The increased activity in the markets has resulted in some artificial demand. This has skewed the demand-supply equation and is behind the volatile price movements in precious metals.
Outlook
The outlook for precious metals is good from a longterm perspective, given the several uncertainties in the world markets, high government debt and demand-supply mismatch at the global level. However, it is very difficult to predict the shortterm direction. In the short term, prices are expected to remain highly volatile due to the speculation activity of large investors and fund houses.
For those invested
The recent crash in global commodities has raised some questions and concerns. Investors are worried about the sustainability of the commodities' bull run over the long run and the possibility of a bubble formation in the prices of gold and silver.
Investors should not take any action in a hurry. The long-term investment outlook for precious metals is still good due to various domestic and global factors. Those with a long-term investment horizon should not panic due to the shortterm volatile movements in precious metal prices, and look for opportunities to accumulate positions further at lower price levels during correction phases.
For those planning to invest
Those looking at making fresh investments in precious metals should use the ongoing correction phase to invest.
However, since the market is quite volatile, investors are advised to accumulate positions in small quantities.
Small investors should invest with a medium to long-term horizon and avoid trading positions in precious metals as the commodity market is quite volatile.
Analysts believe prices in the commodity markets had gone into the over-brought zone and a correction was long due. The prices had gone way above their justified fundamentals. The short-term outlook for precious metals is uncertain, but analysts believe the long-term outlook is bullish due to several factors that influence the prices of precious metals in the international markets.
Safe haven
Investments in precious metals are believed to be a safe haven with respect to the global uncertainties. Although the world economy has come out of the slowdown, there are many uncertain and grey areas still.
The governments of developed countries have mounted huge debts due to large stimulus packages they promoted during the economic slowdown. The demand for precious metals is expected to remain intact in the short to medium terms. This will keep the investment outlook bullish for these instruments.
Increase in demand
The demand for precious metals has increased significantly over the last few years. The new avenues of demand are coming from small investors, hedge funds as well as central governments of various countries. This demand is in addition to the existing demand from the industrial sector and jewellery segment.
On the other hand, the supply of precious metals has not caught up in line with the increase in demand. The higher demand for precious metals is expected to keep the outlook bullish in the medium to long terms.
Trading activity
Speculation and trading is a prime factor driving the volatile price movements in precious metals. Many investors are trading in precious metals in the physical as well as derivative markets .
The increased activity in the markets has resulted in some artificial demand. This has skewed the demand-supply equation and is behind the volatile price movements in precious metals.
Outlook
The outlook for precious metals is good from a longterm perspective, given the several uncertainties in the world markets, high government debt and demand-supply mismatch at the global level. However, it is very difficult to predict the shortterm direction. In the short term, prices are expected to remain highly volatile due to the speculation activity of large investors and fund houses.
For those invested
The recent crash in global commodities has raised some questions and concerns. Investors are worried about the sustainability of the commodities' bull run over the long run and the possibility of a bubble formation in the prices of gold and silver.
Investors should not take any action in a hurry. The long-term investment outlook for precious metals is still good due to various domestic and global factors. Those with a long-term investment horizon should not panic due to the shortterm volatile movements in precious metal prices, and look for opportunities to accumulate positions further at lower price levels during correction phases.
For those planning to invest
Those looking at making fresh investments in precious metals should use the ongoing correction phase to invest.
However, since the market is quite volatile, investors are advised to accumulate positions in small quantities.
Small investors should invest with a medium to long-term horizon and avoid trading positions in precious metals as the commodity market is quite volatile.
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