India Markets Weekahead: Bihar to decide near-term course

November 1, 2015

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

A man looks at a screen across the road displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) building in Mumbai February 6, 2014.The Nifty saw losses every trading day during the week to close 2.8 percent lower at 8,065. Derivative contract expiry, disappointing September quarter earnings, worries that the BJP-led alliance may not do well in the Bihar election and indications of rate hike by the U.S. Fed in December contributed to market jitters.

On an expiry-to-expiry basis, markets had initially gained traction, edging higher by 3 percent, and they would have closed with substantial gains for the month if not for the decline in the past trading week. Interestingly, global markets were on course for their best month in four years. European indices had their best month in six years after global central banks kept stimulus policies intact and many hinted at further steps to re-energise their economies. Thus, Indian markets ended up underperforming their global peers.

Emerging market investors are worried as an expected trend of rising interest rates in the U.S. will drain liquidity from global emerging markets, including India.

Corporate earnings for September quarter were not encouraging and heavyweights like ITC, L&T and Axis Bank disappointed. Axis Bank spooked the street by declaring gross slippages exceeding 24 billion rupees.

Shares of ICICI Bank also witnessed selling pressure in anticipation of a weak result. However, its earnings were mostly in line with expectations even as stressed assets addition continues to remain elevated.

L&T’s operational performance was weaker than estimated due to margin compression in infrastructure segment and losses in heavy engineering segment. The company has reduced its guidance on order inflow and revenue citing domestic and global macro economic developments. Likewise, ITC’s management stated that its performance remained subdued due to unprecedented pressure on cigarette volumes, lack of trading opportunities in agri-commodities and sluggish demand in the FMCG sector. Meanwhile, NTPC one of our weekly picks, reported encouraging set of Q2 numbers, largely driven by higher power generation.

The IPOs of InterGlobe Aviation and SH Kelkar managed to sail through in a volatile market with the former getting oversubscribed six time and the latter 27 times. However, retail demand was lukewarm. The response confirms that there is still a huge appetite from institutional investors for Indian paper. Air Asia, at one point the fastest growing and most profitable airline, seems to be in trouble. It would be a huge achievement if Indigo turns out to be different over the next few years.An IndiGo Airlines aircraft prepares to land as a man paddles his cycle rickshaw in Ahmedabad, India, October 26, 2015.  REUTERS/Amit Dave

The much-awaited draft aviation policy was mainly directed towards cheaper airfares, higher FDI in airlines and boosting regional aviation connectivity.

In the upcoming week, the next batch of Q2 earnings, speculation on Bihar election outcome and cues from global markets are expected to decide market trend.

Some of the key companies  expected to announce their results are Adani Enterprises, Adani Ports, Piramal Enterprises, Reliance Capital, ABB, Adani Power, DLF, IOC, Power Grid, Tech Mahindra, Ashok Leyland, Marico, Neyveli Lignite, P&G, Reliance Infra, Cipla, Tata Steel, Bank of Baroda, BEML, BHEL, Eicher Motors, Motherson Sumi, ONGC, PNB, SAIL, SBI, Tata Motors, Union Bank, Engineers India, Tata Global, Tata Chemicals, IL&FS Transportation and Voltas.

Automobile companies will be in focus as monthly sales data for October will start flowing in. The macro data expected during the week are Nikkei India PMI data for manufacturing and services for October.

Global macro data expected in the upcoming week include PMI data from China, Germany, UK and the United States. U.S. nonfarm payrolls and unemployment report will also be disclosed. The Bank of England’s monetary policy committee will also take an interest rate decision during the week.

A supporter of Bharatiya Janata Party (BJP) waves the party flag during an election campaign rally addressed by Prime Minister Narendra Modi (not pictured) in Banka, in Bihar October 2, 2015. REUTERS/StringerComing back to markets, the Nifty has fallen to the crucial support level of 8,200 and is near the important psychological level of 8,000. The near-term course of stocks will be decided by the flow of commentary from key corporates, and more importantly, the outcome of the Bihar election.

Last week, I had advised investors to take advantage of the recent rally and slowly book profits. It is prudent to stay partly in cash as any intermediate rallies will not be backed by substantial change in the fundamentals. We could take a fresh view after results of the Bihar election are announced on November 8.

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