Economy and Realty at glance- June 2012

GDP at a nine year low of 6.5%, high inflation at 7.55%. Ironically, in the fight between taming inflation and propelling growth, we are losing out on both

- Revenues of top-25 realty companies declined 9.30% in Q4FY12, mainly on account of low sales off-take due to higher prices and higher mortgage rates.

- The Realty Index on Bombay Stock Exchange (BSE) has dropped by more than 26% during the last one year compared to a 10% fall in the Sensex during the last fiscal year. In order to bring back the enthusiasm of the investor community into the sector, real estate companies will have to focus on factors such as improving cash flow position, lowering inventory, reducing debt and increasing profit margins

- RBI in its mid quarter review of monetary policy in June reaffirms that cheap interest rate is a far-fetched expectation in the wake of high inflation rate

- During the March 2012 quarter, interest cost as a percentage to sales stood at 15% compared to only 8% reported during the March 2010 quarter

- Although international crude oil price has declined by 20% since the beginning of the last fiscal year, the price of domestic fuel has gone up because the depreciation in Indian currency against USD by 25% during the same period has made import of crude oil expensive

- The Indian Rupee has depreciated by 18%, 8% and 32% against the British Pound, Euro and Yen respectively. Hence, a stubbornly high inflation rate will defer a lower interest rate regime

Metals losing its sheen at current levels...

The Asian Indices are witnessing down pressures mirroring losses in Chinese markets due to credit tightening and South Korea fighting with inflationary pressures.

Analysts were already expecting a profit booking trends owing to soar prices. Metals and commodity index also witnessed volatility with gains in US Dollar. The sectors to watch post correction are auto, capital goods and construction. These sectors are set to rally after the Chinese market recovers, Euro issues improve and Dollar strengthens in coming months.

According to experts profit booking was on expected lines as valuations were at all-time highs. They are advising retail investors to exit metals and other commodities which are under pressure due to gains in US dollar. The sectors to look at post correction are auto, capital goods and construction space. Long term investors should continue to stay put, they said.

With Metals at their high it's advised for retail investors to exit at these levels whereas long term investors can hold it till the market recovers. Market has a strong support at 5940 levels and it's difficult to sustain at current levels which rallied with foreign liquidity in emerging markets.

Weakness in global markets can take Nifty to 5700-5800 levels. FIIs like CLSA believe any corrections in emerging markets are buying opportunities. High beta sectors like metals and realty are more prone to slow down there speed.

The Metal and commodity market are expected to bounce back but till then it's advised to wait and watch the metal that are losing sheen at current levels.

Source – ET