Markets Weekahead – Time to book profits

April 19, 2015

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

People watch a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in MumbaiMarkets fell to their lowest level in almost two weeks, with the Nifty down 1.98 percent in the week to end at 8,606. The week started on a positive note but turned decisively weak in the last three sessions despite positive macro cues and deals struck during Prime Minister Narendra Modi’s three-nation tour.

Global markets were mixed with other Asian markets, especially China, showing strength with a 6.27 percent jump, while the euro zone and U.S. markets showed weakness. Crude oil continued to gain for the fifth week with Brent rising 9.6 percent in the week.

One of the reasons attributed to the weakness in Indian markets seems to be the demand for 400 billion rupees ($6.4 billion) of Minimum Alternate Tax (MAT) on capital gains from FIIs, resulting in net selling in the last two trading sessions.

The week also saw mixed earnings data from some of the industry heavyweights. TCS disappointed investors and the stock fell over 4 percent on Friday. Reliance Industries reported better than expected earnings, and the company’s stocks could cushion the general market weakness in the ensuing week.

Private sector banks such as IndusInd and DCB Bank continued to exhibit robust performance with higher net interest income and superior asset quality. Cement major ACC reported poor numbers with net profit declining 41 percent on lower demand.

The upcoming week will see results from Infosys, Wipro, HCL Technologies, Yes Bank, HDFC Bank and Cairn India. If the three IT majors disappoint, the sector could remain an underperformer for the next few months. Cross-currency headwinds seem to be the major stumbling block and may continue for the rest of the year.

The macro cues in terms of inflation were benign with both the Consumer Price Index and Wholesale Price Index positively surprising the markets. However, trade data for March released on Friday reported the largest deficit in the past four months. Gold imports doubled whereas exports fell marginally. This is worrisome, especially when the prime minister is projecting a doubling of exports in the next four years as a result of the “Make in India” campaign. Rising crude prices was another source of worry for the markets and this could exert pressure on imports in the current month.Indian currency of different denominations are seen in this picture illustration taken in Mumbai

The second half of the budget session starting Monday is expected to be a stormy one. Important bills to be taken up include the Land Acquisition Bill, the Goods and Services Tax Bill and the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill.

Markets could test the psychological support level of 8,400 for the Nifty in the next week or two, but I wonder whether buying support would emerge at lower levels given the circumstances. A break below that could push the markets to test the 7,800-8,000 band in the next few weeks.

May is traditionally a weak month for markets, although 2014 was an exception due to Narendra Modi’s historic election victory. This year, it coincides with the one-year report card of the government, which could raise more questions than accolades from marketmen and corporate India. It’s time to book profits before the markets slide further. The mid-caps and small-caps could bear the brunt of this fall.

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