India Markets Weekahead: Data to drive stocks

August 30, 2015

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

A turbulent week saw the Nifty closing down 3.6 percent at 8,002, but this seems a marginal loss considering Monday’s intraday crash where the index touched a low of 7,667, its sharpest fall in 30 months. The week saw net selling to the tune of $1.9 billion by foreign portfolio investors with mid- and small-caps facing the maximum brunt.

An investor looks at an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. REUTERS/Jason LeeMarkets recovered in the latter half of the week in line with global equities after comments from the Fed suggesting a U.S rate hike might get delayed. Also aiding sentiments were statements from Chinese authorities that pension funds will start investing 2 trillion yuan ($313.05 billion) in stocks and other assets. The Chinese central bank managed to calm markets by cutting interest rates for the fifth time since November and simultaneously reducing the reserve requirement ratio. A strong upward revision in the U.S. GDP data and better-than-expected domestic data also helped soothe nerves.

Back home, concern over falling markets resulted in sound bytes from the finance minister, finance secretary and the RBI governor to assure that the Indian economy is comparatively stable and insulated from international vagaries. Finance Minister Arun Jaitley even suggested that India could replace China as the driver for global growth.

However, the RBI governor resisted calls for a pre-policy rate cut, though I would expect it in the September policy review considering benign inflation data.

Currency markets too were in a quandary with the rupee breaching the 66 mark against the dollar. Crude oil prices plunged to fresh lows of $38 on NYMEX due to slowdown concerns in China and growing crude oil supplies in the U.S. However they rebounded after better-than-expected U.S GDP numbers.

In the coming week, Indian auto stocks will be in action as market participants will focus on August sales numbers. Shares Reserve Bank of India (RBI) Governor Raghuram Rajan listens to a question at a news conference after the bi-monthly monetary policy review in Mumbaiof public sector oil marketing companies (OMC) will also be watched as a regular fuel price review will be out at the end of the month. August manufacturing PMI and services PMI data are also due.

On Monday, investors will react to the April-June quarter GDP numbers, which is expected to be 7.4 percent as against 7.5 percent in the January-March quarter.

Globally, a series of macroeconomic data are expected this week – euro zone Markit Manufacturing and Services PMI data for August 2015 are due, and the European Central Bank’s monetary policy statement and the crucial monthly U.S non-farm payrolls data for August are also scheduled. Chinese manufacturing and non-manufacturing PMI for the month of August are also expected. The official manufacturing PMI is expected to contract for the first time since February at 49.7.

The silver lining is that we are currently in a “sweet spot” compared to our peers: the fall in commodity prices will benefit India even with depreciation of the rupee because the country is a net importer. Our hard commodities consumption is bound to rise if we get into a fresh investment cycle with the creation of infrastructure and manufacturing capacities. These are the basic building blocks of “Make in India” without which we will never to be able to achieve the projected 9 percent and above growth in the next few years. We had a similar opportunity in 2009 but the UPA government frittered it away. The onus lies on the present government to seize the moment.

Coming back to markets, the focus will be on macroeconomic data from various regions, especially China. After the sharp fall and an equally sharp retracement, markets are expected to consolidate. If news flows are benign, an upside of 8,200 for the Nifty is not ruled out; but this may not be the beginning of a fresh bull run. The broad range for the index would be 7,800-8,200 with 7,800-8,000 being the ideal entry zone. I expect a consolidation in this zone before the next move.

I have been waiting for this opportunity for some time now. It would be wise to invest only partially at these levels considering the China-driven global market turmoil is far from over, thus providing multiple opportunities to buy over the next few weeks.

One comment

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Dear Mr. Ambareesh,

Thanks for your report.

Do you see market touching 9000 mark by year end.

Regards,

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