India Markets Weekahead: Time to book some profits

October 25, 2015

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

Indian shares marked their fourth consecutive week of gains with the Nifty adding 0.70 percent at 8,295, a notch below the crucial 8,300 levels. Encouraging corporate results and support from global indices helped markets stay higher.

FIIs were net buyers during the week with purchases worth $297 million, and the rupee strengthened to 64.82 against the dollar due to positive cues from equity markets.

A broker monitors share prices while trading at a brokerage firm in Mumbai August 22, 2013. REUTERS/Danish Siddiqui/FilesThe key highlight for the week was the ECB suggesting it could extend its stimulus programme beyond 2016. Also, the Chinese economy grew at its slowest pace in six years in the third quarter, expanding 6.9 percent in September 2015 and forcing the central bank to cut rates again.

Back home, Standard & Poor’s kept its ‘BBB-‘ long-term and ‘A-3′ short-term sovereign credit rating on India with a stable outlook. The agency added it does not expect to change its rating this year or in 2016 based on its current set of forecasts.

Two IPOs will hit the markets next week – Interglobe Aviation Ltd., which operates Indigo Airlines, and S H Kelkar & Co. Ltd, a 90-year-old fragrance and flavour company. Earlier, Coffee Day Enterprises’ issue didn’t elicit adequate retail interest due to its high valuation. It will be interesting to see how the upcoming IPOs fare in the primary market, considering their high valuations.

An interesting feature of such marquee IPOs is the salutary effect on sector stocks. Tata Global, which runs Starbucks in India, appreciated during the Cafe Coffee Day IPO, and both SpiceJet and Jet Airways have moved up sharply in the run-up to Indigo’s IPO.

The upcoming week could see a gap-up opening after China announced a cut in interest rates for the sixth time in the last 12 months. Overnight gains in U.S. markets too augur well for Indian markets. However, volatility is expected during the week ahead of derivative contract expiry on Thursday.

A man takes a picture with a mobile phone of the euro sign at the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski/FilesInvestors will closely track the next batch of Q2 results during the week. The focus will also be on outlook guidance from company managements. Some of the key results expected are Bharti Airtel, HDFC, Axis Bank, Lupin, Maruti, Vedanta, Ambuja Cements, Dr. Reddy’s Labs and NTPC.

Capital goods stocks could continue to be in focus as a draft national policy on capital goods has been framed for the first time. The sector is important for the government’s “Make in India” push as it has multiplier effect on other sectors. The policy aims to create 3.5 million more jobs and increase exports to 40 percent of total output, or 2 trillion rupees, by 2025.

On the global front, the U.S. Fed’s two-day meeting to decide on interest rates will be held on Tuesday and Wednesday, followed by the Bank of Japan’s meeting on interest rates on Friday. Investors will also look forward to China’s fifth Plenum (October 26-29) where leaders will announce a draft of their 13th Five Year Plan, a blueprint that sets the direction for China’s economic and social development.

Coming back to markets, the Nifty is set to enter an important zone of 8,300-8,500 levels. Gains of almost 10 percent from recent lows have turned the tide in favour of the bulls. The latest stimulus hints from the ECB and China’s rate cuts suggest that sluggish economies are desperate for revival. This augurs well for risk assets like equities.

I would advise investors to maintain a bullish bias, but book profits periodically in stocks or sectors which have seen a sharp run-up. The next big event will be the Bihar election results on November 8. Markets seem to be running ahead of fundamentals but momentum and sentiment is in their favour. Utilise the opportunity to slowly get into cash.

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