India Markets Weekahead: Don’t get carried away by near-term sentiments

May 31, 2015

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

The Nifty remained extremely volatile during the week to eventually end flat at 8,433. The sharp fall at the start of the week was due to extremely low volumes, which was compensated by a sharp bounce-back at the end on very high institutional buying.

The National Stock Exchange’s cash market volume touched a record high of 436 billion rupees on Friday, with nearly half of that clocked in the last half-an-hour of trade, attributed to a recast of the MSCI index. Markets gained about 3 percent for the month after two consecutive declines.

India Markets Weekahead: Don’t get carried away by near-term sentiments

Results were a mixed bag with a few surprises. Tata Motors, ONGC, Wockhardt and Tech Mahindra reported weak Q4 numbers while Praj Industries, Coal India, BHEL and SpiceJet surprised the street by reporting better than expected results. Sun Pharma missed estimates, primarily due to the Ranbaxy merger, and L&T also disappointed, weighed by the slowdown of its overseas hydrocarbon business. We could see a visible cut for both on Monday.

On the macro front, GDP grew by 7.5 percent for the quarter ended March 2015. The numbers are slightly better than expectations, but the market seems to have got a whiff of it as reflected in the late surge.

The coming week will see the market reacting to a plethora of macro-economic numbers. The HSBC Manufacturing PMI will be announced on Monday, while the RBI will hold its policy review on Tuesday. A 25 bps rate cut is widely expected considering low inflation and slowdown in growth. If the RBI surprises by holding rates, markets are expected to fall sharply, while a 50 bps rate cut could take the Nifty briefly beyond 8,500.

Also on the radar will be monthly sales numbers of auto companies.

Shares of PSU oil marketing companies will be in focus as they undertake a review of fuel prices at the end the month. After the bold moves in the last two fortnights, we may not see a big change. The review is based on the average imported oil prices in the preceding fortnight.

Progress of the monsoon will also be closely watched but the bad news is that Skymet is forecasting a delayed arrival.

Meanwhile in Europe, Greece is scheduled to repay 1.6 billion euros ($1.76 billion) to the IMF between June 5 and June 19, but I feel there is a good chance that it will default on the loan once again.

India Markets Weekahead: Don’t get carried away by near-term sentimentsChina’s HSBC Manufacturing PMI for May 2015 will be announced on Monday, while the HSBC Services PMI, Eurozone unemployment rate and ECB monetary policy statement for May 2015 will be released on Wednesday. U.S. unemployment data for May 2015 will be disclosed on Friday.

With the earnings season almost behind us, the focus will be on rate sensitives like banking, realty and autos following the RBI policy meet.

Though I have been maintaining a cautious view on markets in the absence of any fresh triggers, a break beyond 8,500 for the Nifty may signal an intermediate bottom and one could see a short covering rally till 8,650.

However, I continue to remain cautious over the medium term and suggest a steady lightening of portfolio. Do not get carried away by near-term sentiments as earnings show a dismal situation on the ground. The earnings downgrades are yet to be factored into the valuation.

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