Indian Summer Brings Heat Back to Nifty Fifty
LONDON, August 1, 2012 /PRNewswire/ –
- Indian stocks finally rebound on central bank anticipation - Video of Colin Cieszynski's Nifty Fifty analysis here [http://www.youtube.com/watch?v=6BLXTmcjLPw&feature=youtu.be&utm_source=prnewswire&utm_medium=mediarelease&utm_campaign=niftyfifty ]
India’s Nifty Fifty Index fell through the back half of 2011 and the first part of
this year. In recent months, however, it has finally started to trend higher, maintaining
its recovery course despite a normal trading correction in July.
Seasonal and interest rate trends suggest that the index
[http://support.google.com/googleanalytics/bin/answer.py?hl=en&answer=55578 ] could start
to attract even more attention in the coming month. Following these recent changes, Colin
Cieszynski (Senior Market Analyst at CMC Markets
) has compiled a special report into
India’s Nifty Fifty.
Colin’s report looks at three key areas to provide an analysis into what the future
holds for the Nifty Fifty: positive seasonal trends that have emerged, the sector
weighting that is unique to India’s stock market and finally, its recent recovery trend.
The Reserve Bank of India’s interest rate was left unchanged for the second time since
June today in an effort to temper inflationary impulses. After two years of tightening,
the RBI had previously cut interest rates in April this year. It had been expected to
announce another 25 basis point interest rate cut in June but held off as did many other
central banks around the world pending the Greek election and EU summit. The economic
growth outlook for the fiscal year has also been revised down to 6.5% from the initial
7.3% assumed in April.
1. Positive seasonal trends emerging
Seasonal trends in India are quite different from other stock markets
around the world. The three weakest
months of the year for trading in the Nifty have traditionally been March (start of
summer), June (end of summer) and October (end of monsoon) which obviously coincide with
the changing of seasons.
The strongest period of the year is the winter, running from November to February,
which coincides with ‘wedding season’ in India. Interestingly, seasonal trading in India
is most similar to gold which is also influenced by Indian seasons due to high consumer
demand for precious metals.
The first three months of monsoon season have also generally been positive for the
Nifty. This year, the index has been trending higher since late May and kicked off July
with a breakout from a long-term downtrend suggesting that after a year of slowdown fears
in emerging markets dragging on the Index, normal seasonal trends may be re-asserting
Average Monthly Return 1987-present Month Dow India Gold January 0.37% 1.01% 0.12% February 0.38% 5.53% 0.28% March 1.13% (0.48%) (0.15%) April 2.39% 0.47% 1.04% May 1.16% 4.62% 0.11% June (0.64%) (1.05%) (0.06%) July 1.70% 2.24% 0.09% August (1.02%) 2.98% 0.68% September (0.97%) 2.10% 1.72% October 0.52% (2.41%) (0.01%) November 1.29% 1.14% 2.15% December 2.02% 3.62% 0.69%
Source: CMC Markets
2. Sector Weighting
Relative to other major indices around the world, India’s Nifty Fifty tends to be more
heavily weighted in the energy, information technology and financial sectors. In
comparison with other Asian economies, the technology sector is more focused on IT
services than semi-conductors or software. The index could benefit from a rebound in
energy prices, and improved sentiment toward banks and the more steady IT service sector
not being impacted by the economic slowdown in the same way that chipmakers could be.
Market Cap Weighting By Country May 2012 US Asia India China Australia Europe Latin Am World Total 100% 100% 100% 100% 100% 100% 99% 100% Energy 11% 8% 13% 8% 7% 12% 11% 11% Materials 3% 6% 8% 13% 23% 10% 19% 7% Industrials 10% 5% 7% 17% 7% 10% 5% 10% Consumer Discretionary 11% 9% 9% 9% 3% 9% 5% 10% Consumer Staples 11% 2% 11% 8% 8% 15% 18% 11% Health Care 12% 0% 4% 5% 4% 12% 0% 10% Financials 15% 30% 27% 33% 40% 18% 20% 19% Information Technology 20% 28% 13% 3% 1% 3% 0% 13% Telecom Services 3% 8% 2% 1% 5% 6% 16% 5% Utilities 4% 4% 4% 3% 2% 5% 6% 4%
Source: CMC Markets
3. Recent recovery trend and the RBI rate decision
Through the first half of this year, export sensitive emerging economies such as
China, India and Brazil have been losing steam with key customers in Europe, and to a
lesser extent the US. Recognizing the need to stimulate internal demand, central banks in
China and Brazil have already lowered interest rates this month.
It is clear from the RBI governor’s quotes today that the risk of higher inflation was
key to the RBI decision, with Governor Duvvuri Subbarao stating that lowering interest
rates would only ‘aggravate’ inflationary ‘impulses’.
An additional video is available here
, looking at the market outlook for the US during
August. Traditionally August has been one of the weaker months of the year for stock
markets. Between central bank meetings and political developments, this August could be
potentially quite active.
The material (whether or not it states any opinions) is for general information
purposes only, and does not take into account your personal circumstances or objectives.
Nothing in this material is (or should be considered to be) financial, investment or other
advice on which reliance should be placed. No opinion given in the material constitutes a
recommendation by CMC Markets or the author that any particular investment, security,
transaction or investment strategy is suitable for any specific person.
SOURCE CMC Markets