India Markets Weekahead: Stock up for the new year

December 6, 2015

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

The Nifty corrected sharply by about 2 percent for the week to close below the crucial 7,800 mark on heightened prospects of a U.S interest rate hike in the coming days. Sentiment was also hit after the rupee fell to its lowest level in more than two years as it headed towards 67 against the dollar. FIIs sold equities worth $382 million over the past five trading sessions while DIIs bought stocks worth $385 million.

People walk pass the Bombay Stock Exchange (BSE) building displaying India’s benchmark share index on its facade, in Mumbai September 30, 2009. REUTERS/Punit Paranjpe/Files

Weakness was prominent after the ECB cut its deposit facility rate to ‐0.3 percent from ‐0.2 percent. Though the bond buying programme was extended till March 2017, disappointment stemmed from the fact that the central bank did not increase the quantum.

Back home, India’s Q2 GDP grew 7.4 percent, meeting estimates. However, Nikkei’s India manufacturing PMI for November fell to a 25-month low of 50.3. As expected, the RBI stayed pat on key rates in its monetary policy review. The governor is probably in a wait-and-watch mode and would assess the impact of a probable U.S. rate hike before further easing.

Automobile sales for the month of November 2015 remained lacklustre with most companies reporting below expected numbers. Major two-wheeler companies reported flattish to low single-digit yearly sales growth, while in the passenger vehicle (PV) segment, recent new launches saved the day for Maruti, although overall sales were slightly below expectations.

In related news, the government said that it is mulling a ban on commercial vehicles (CV) which are more than 15 years old to check rising pollution levels. The move, if implemented, will be positive for CV manufacturers. The AAP government in Delhi announced curbs on use of private vehicles. This could spur demand for new cars as well as used cars as families try and ensure they have both odd and even numbered cars. The 7th Pay Commission recommendations and OROP when implemented would also boost demand for two-wheelers as well as entry-level private vehicles.

Meanwhile, heavy and unprecedented floods in Chennai may lead to financial losses to the tune of 150 billion rupees as manufacturing facilities are shut down. The most impacted will be the automobile sector as Tamil Nadu accounts for 25 percent of India’s automotive output as well as a number of auto ancillaries. There are several other companies in the IT and chemical and fertilizer space who are impacted.

A view of the Indian parliament building is seen in New Delhi July 21, 2008. REUTERS/B Mathur/Files

The report on GST by the CEA panel has recommended a Revenue Neutral Rate (RNR) between 15-15.5 percent, with 17.7 percent proposed as the standard rate. The contentious issues raised by the Congress seem to have been addressed to some extent, so there is still hope that the opposition will allow the bill to be passed. However, even if it gets through in the Rajya Sabha this winter session, I doubt whether it could be implemented by April 1, 2016 as it needs to be cleared by 50 percent of state legislatures. We may have to wait till April 2017 for the actual rollout.

Meanwhile, in the OPEC meet, members agreed to roll over its policy of maintaining crude production and raise output ceiling to 31.5 million bpd, leaving members to continue pumping crude at near-record levels into an already oversupplied market. Crude oil prices have lost further ground as a result.

Going over to next week, India will unveil its IIP data for the month of October. On the political front, developments in the winter session of the parliament will be closely watched, especially passage of the key GST bill. Japan’s prime minister is visiting India for three days to cover defense cooperation, investment and a potential high-speed railway deal.

Globally, better-than-expected U.S employment report released on Friday would reinforce expectations for a December rate hike. Economic data in China would be watched keenly as hopes of further stimulus is gaining strength on slower growth concerns.

Coming back to markets, the Nifty is currently in the crucial support zone of 7,750-7,800 and I expect a Monday morning bounce. The index will reach the 7,800-8,000 range and stay there for the next few days in the absence of any immediate negative trigger except for the U.S. Fed policy meet, which is still about two weeks away. Markets are expected to react to the CEA panel recommendation on GST on Monday. I would continue to advise utilising the present weakness to stock up.

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India markets still playing for an early turn around. With passing quarter hopeful are feeling fooled and Outsiders waiting on bay. Indian analysts remain trapped in time from 2001 to 2003. But, fact like US Interest cycle, Tech advances, India remaining dormant in last 5-7 years remains. The Systemic flaws in system remain with conflict of interest and social divide widening. Bureaucratic hurdles unmoved, rusted political collage, Absence of Education etc remain. The Present governance lacks the intrinsic skills and knowhow to run effectively.
India has to shake-wake and till that, Markets may find tough to progress. 8600- 9200 remains a concrete slab for times to come, While a huge space around 6500 to 7500. The Gap theory vindicates Markets to touch 6850 at least for 2 days.

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