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India Markets Weekahead: Markets back on track for pre-election rally

By Ambareesh Baliga
March 2, 2014

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The week started on a sombre note but with institutional activity picking up, the Nifty closed with gains of 1.97 percent at 6276 despite a mid-week trading holiday. Political activity also gained momentum with 11 parties coming together to form a Third Front to oppose both national parties.

 

The Election Commission may announce election dates in the coming week — the code of conduct coming in will halt any policy decisions.

GDP growth for the December quarter of this financial year was slightly below market expectations at 4.7 percent, whereas the fiscal deficit exceeded the annual limit of $86 billion within 10 months. The previous year, we were at 89.4 percent of the annual limit. This puts a question on the finance minister’s ability to live up to his promises.

Next week, we will get manufacturing and services PMI data for February. Automobile numbers have been announced and despite an excise duty cut, most listed players are seeing flat to contracting sales as inventories build up.  Maruti was flat at 1.8 percent whereas Tata Motors and Mahindra & Mahindra declined.

Macro data from the United States would be keenly watched. China would also be announcing fourth quarter GDP later in the week. Euro zone interest rates will be decided as unemployment stays high.  But the most important development to be followed would be the situation in Ukraine.

VIX futures were launched by the National Stock Exchange as the market braces for volatility in the run-up to the general election. The rupee gained against the dollar during the week, logging in the best monthly gains since October and closing at 61.75 against the dollar.

A number of Indian companies with stretched balance sheets have been looking to sell their assets and this is expected to gather steam after the elections. Investors seem to be waiting for a stable government with progressive policies before deciding to invest in Indian assets. GMR and Welspun Corp sold their foreign assets. Elder Pharma sold its  formulation business to Torrent Pharma while Jaypee sold its cement unit to Ultratech.

The discussion on non-performing assets of the Indian banking sector came to the fore when United Bank of India CMD Archana Bhargava resigned. NPAs of listed banks rose 35.2 percent in the nine months till December. This sector, especially the PSU lot, could underperform in the fourth quarter results.

The markets are back on track for a pre-election rally. After five days of gains, it would be natural to have a small correction but that should be utilized to buy. The political contours could change in the next two months but clarity would emerge as we approach election season.

During this period, the markets would move more on hope and opinion polls than economic data points, which could act either as temporary catalysts or dampeners.

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