India Markets Weekahead: Another opportunity to lighten commitments

August 2, 2015

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

Markets had a volatile July series expiry, and a spate of events like the monsoon session of parliament, the U.S. Fed meeting and June quarter results kept stocks edgy.

A broker monitors share prices while trading at a brokerage firm in MumbaiThe past week turned out to be a positive one for the Nifty after an initial scare as players shrugged off weakness in China, fears that the SEBI may tighten rules on participatory notes (P-Notes) and some disappointing corporate results. The focus was on positive variables like the cabinet nod for an amended GST Bill, the DIPP introducing composite cap for simplification of FDI, the EPFO’s plans to invest in equity markets and the improving monsoon situation.

An assurance from the finance minister regarding P-Notes and the government’s plans to infuse capital in select PSU banks provided the much-needed impetus for markets, aided by a non-committal Fed and Chinese markets stabilising at lower levels.

However, the country’s core sector continues to lag, showing a 3 percent growth in June compared to 4.4 percent in May due to weakness in sectors like infrastructure, oil and gas, steel and cement. While this could give optimists a reason to hope for a rate cut on August 4, I believe the RBI governor will hold rates due to high retail inflation, which touched an eight-month high. Monsoon recovered in the latter half of July but still seems below normal. However, the Indian Council of Agricultural Research is hopeful of a good crop this year.

Indian security personnel stand guard near sacks containing the papers of the federal budget for the 2014 2015 fiscal year, at the parliament in New DelhiMeanwhile, the monsoon session of parliament has been a washout till date. This could derail the reforms process as important bills relating to GST and land acquisition would get stalled. The earnings season has been a mixed bag so far with some signs of margin improvement for companies having crude and its derivatives as input. Results of private banks and some auto and auto ancillary companies were in line with estimates and there is an order book pickup in some infra companies, especially in the road sector.

ITC, ICICI Bank and Dr. Reddy’s hogged the limelight while most PSU banks reported weak numbers led by bad assets. However, shares in some banks rallied due to a slowdown in growth of bad loans.

The coming week is an important one as the RBI will unveil its third bi-monthly monetary policy review on Tuesday. The commentary of the governor will be crucial as his outlook on inflation and economic growth will provide a cue on the future interest rate trajectory. The other triggers for markets in the coming week are corporate earnings and developments in parliament.

Key results to be announced include Bharat Forge, HCL Tech, Hero MotoCorp, Bharti Airtel, Britannia, Bata India, Emami, Marico, Tata Chemicals, Vardhaman Textiles, Arvind, KEI, BHEL, Tata Motors, M&M and Central Bank of India.

A worker walks past parked cars at a stockyard on the outskirts of AhmedabadShares of automobile companies will be in focus as companies have started announcing monthly sales volume data for July 2015. Markets will cheer Maruti, Ashok Leyland and Eicher as they have reported excellent numbers, while TVS and M&M are lagging behind. Among key domestic data, manufacturing and services PMI data for the month of July is expected during the week.

Markets have received a fresh lease of life with uncertainties in Greece, China and the U.S. Fed subsiding. The Nifty may consolidate this week as the RBI policy will keep markets apprehensive.

With the Nifty breaching 8,500, sentiments have once again turned bullish. However, we should not forget that markets have been in the 8,200-8,600 range for some time and stocks across the board do not give the required confidence except for the liquidity factor. A number of the frontline stocks are not participating on the upside and the core sector is in a downtrend.

I would continue to reiterate that this market is providing you an opportunity to lighten commitments, especially in the mid-cap space.

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