India Markets Weekahead: Keep shopping list handy for panic days

June 14, 2015

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

Markets succumbed to selling pressure this week with the Nifty closing below the psychological level of 8,000. Trading for the week started on a negative note, but markets got temporary relief after the MSCI deferred the inclusion of China ‘A’ shares in its Emerging Markets Index.

Still, weakness persisted and the Nifty broke recent lows. Fears of an insufficient monsoon and a weakening rupee were catalysts for the decline. The BSE Midcap index has managed to outperform the Nifty, a sign that the broader market is still holding on. It remains to be seen whether the next leg of the fall would be led by the mid-caps. FIIs continued to be net sellers to the tune of $300 million.

Oil has been hardening with Brent crude settling at around $65 a barrel. India reaped a bonanza of lower oil prices throughout the previous financial year, resulting in benign inflation, current account deficit and trade balance. IIP and retail inflation data are among the macro numbers released this week. IIP for April surged to 4.1 percent as against a market estimate of 1.16 percent. CPI data for May came in at 5.01 percent, against an estimated 5 percent and 4.87 percent for the previous period.

The bigger surprise has come from the sixth straight pick-up in capital goods data which rose 11.1 percent in April. A 3.1 percent expansion in consumer durables also suggests a pick-up in the economy and investment cycle. WPI data for May is due on Monday and one needs to see whether this trend continues in May 2015, as base effect would come into play.

Globally, attention will be on the Federal Open Markets Committee (FOMC) meet scheduled on June 16 and 17 to review monetary policy. The recent flow of positive U.S. economic data has reinforced perceptions that the Federal Reserve Bank might hike interest rates later this year. A two-day meeting of the Bank of Japan to review the country’s monetary policy begins June 18.

With the increased possibility of Grexit later this month, the United Kingdom’s referendum on EU membership by 2017 is adding another dimension to the European Union. Most of these developments would have a negative bearing on international markets, including India.

Back home, with the results season over, the markets will be driven by the progress of monsoon, rupee movement and the outcome of the Greece debt talks. With IIP data surprising the markets, we may see a short-term bounce in the Nifty, but crossing 8000/8050 levels would be the first hurdle. Still, a level of beyond 8200 seems improbable in this move.

The markets will require a fresh trigger for logging any further gains, in the absence of which we may re-test sub-8000 levels. With fatigue setting in, the markets would move towards 7800 over the next few weeks and I don’t rule out a panic fall to 7500 due to a mid-cap and small-cap selloff.

I continue to maintain a cautious stance on the markets and would recommend traders to use the upside to lighten their long positions. Investors should get their shopping list ready for staggered buying on those days when there are signs of panic. We are in the midst of an overdue correction in a long-term bull market. One needs to stand out from the crowd and utilize the opportunity over the next two months.

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