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Friday, January 11, 2013

About weak IIP and strong Infy

The IIP number for November 2012 came in at a disappointing –0.1% compared to the 6% growth in November 2011. That means factory output shrank marginally from the year-ago month. The economy is still down, and only strong reform measures and a decent budget may shake it up from its somnolence.

For the Apr to Nov ‘12 period, IIP grew by a puny 1%, compared to a 3.8% growth during the same period in 2011. Mr Montek Singh Ahluwalia of the Planning Commission tried to put an interesting spin on the negative number – by saying that it was a statistical aberration because Diwali was celebrated in November in 2012.

That wasn’t the only bad news. Exports fell for the 8th straight month. However, the trade deficit reduced to $17.7 Billion in December from $19.3 Billion in November. Thanks to shrinking exports and the poor IIP figure, Rupee lost value despite strong FII inflows.

The poor IIP figure raised hopes of an interest rate cut by RBI later in the month. However, the inflation figure expected on Monday (Jan 14) will determine whether the RBI will cut rates. Even if it does, it is unlikely to be more than 25 bps – which may have very little effect on the market.

Surprisingly positive noises from Infosys management helped to prop up the stock market. Q3 revenues rose by 12% from the year-ago quarter, but net profit was down 0.1%. However, the full year and Q4 guidance were raised, which cheered the market no end.

After several quarters of disappointing results, which led to excessive selling of the Infosys stock, today’s euphoria was also a bit overdone. The stock opened up with a huge gap above its 200 day EMA, backed by a sharp increase in volumes, and rose nearly 17%.

Interestingly, the large gap in the Infosys chart formed on Apr 13 ‘12 – which was partly filled during Sep ‘12 – has not yet been fully filled. But that may be a moot point. The 2 years long down trend in the stock may be getting over.

Does that mean it is a good time to buy the Infy stock? If you missed buying on the break out today, you may get another chance if there is a pullback towards the 200 day EMA. Such pullbacks often follow sharp break outs. 

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