India Markets Weekahead: Look for bargains during the Christmas sale

December 13, 2015

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

The stock market remained weak with the Nifty closing 2.2 percent lower at 7,610 last week. Investors were on tenterhooks over the passage of the Goods and Services Tax (GST) bill in parliament. Global markets were watchful of the crucial U.S. Federal Reserve meet that will decide the course of a rate hike cycle. Chinese trade data exhibited weakness for the fifth consecutive month, adding to nervousness.

The Nifty has fallen more than 4 percent since its recent high of around 8,000. Selling by FIIs to the tune of $467.65 million during the week and a weakening rupee also dented sentiment.

The Bombay Stock Exchange (BSE) building is pictured next to a police van in Mumbai, India, August 24, 2015. India's benchmark BSE index fell more than 5 percent on Monday to their lowest in a year, as a rout in Chinese equities sparked widespread unrest in global financial markets. REUTERS/Danish Siddiqui - RTX1PEZS

The Bombay Stock Exchange (BSE) building is pictured next to a police van in Mumbai, India, August 24, 2015. REUTERS/Danish Siddiqui/Files

Crude remained in the limelight after it hit fresh 2009 lows as the International Energy Agency warned of an oversupply situation worsening in the coming year. The NYMEX hit the $36 a barrel mark. Low oil prices are a boon for India as it will reduce the import bill and make crucial funds available for infrastructure spending, speeding up economic reforms.

Industrial output for October expanded by a higher-than-expected 9.8 percent (vs 3.8 percent in September). Despite the lower base effect and the festive season, the margin of increase surprised analysts. With the IIP on the uptick over the last few months, economic recovery seems to be on the mend.

To protect the domestic steel industry, the government has imposed an anti-dumping duty in the range of 5-57 percent on cold-rolled steel for a period of five years. The real estate sector was in the spotlight after amendments to the Real Estate (Regulation and Development) Bill were accepted by the Cabinet. Though the initial years would see some turmoil, in the long term it would bring in transparency and accountability in the real estate sector.

In the coming week, the focus will be mainly on the crucial U.S. FOMC policy meeting, wherein Fed Forward rate curves suggest an 83 percent probability of a 25 bps hike. Although most market participants expect the hike to come through this time, the tone of the policy will be crucial in determining the short-term trend. Markets in India were giving up hopes of the GST Bill passing in the winter session of parliament, but it’s still listed to be taken up next week.

On Monday morning, investors will react to IIP data, which is expected to be offset by a weak Friday close in the U.S equity markets. Macro data expected this week are CPI and WPI numbers on Monday. Data on payment of the third installment of advance taxes by India Inc will be available after Dec. 15. On the political front, developments in the winter session of parliament, concluding on Dec. 23, will be closely watched.

Japan's Prime Minister Shinzo Abe (L) shakes hands with his Indian counterpart Narendra Modi during a photo opportunity ahead of their meeting at Hyderabad House in New Delhi December 12, 2015. India and Japan are likely to finalize an agreement on protection of military information during Prime Minister Shinzo Abe's trip beginning on Friday that will the lay the ground for Japanese arms sales to India, including seaplanes. REUTERS/Adnan Abidi - RTX1YBWA

Japan’s Prime Minister Shinzo Abe (L) shakes hands with his Indian counterpart Narendra Modi during a photo opportunity ahead of their meeting at Hyderabad House in New Delhi December 12, 2015. REUTERS/Adnan Abidi/Files

Japanese premier Shinzo Abe’s visit to India will result in a number of announcements, including a bullet train and civil nuclear sector. Japan has also created a fund of $12 billion for the “Make in India” initiative. Overall, this Brand India marketing along with reform-oriented baby steps taken in the past few months should pay off in 2016 with India being one of the few bright spots in the global economy. This will help the FII outflow, over the past few months, get reversed.

Coming back to the markets, the Nifty is firmly in corrective mode with levels of 7,600 being breached. Though market participants are now talking of much lower levels, I strongly feel that markets could find support near 7,500 levels which has been the base for a while, as most of the negatives related to GST, Chinese economy and concerns of a Fed rate hike are priced in.

After the U.S. Fed announcement this week, there are no near-term negative triggers and the focus is expected to be on the government on the reforms front. A miraculous GST bill passage would be an unexpected bonus. With the year coming to an end, participation from FIIs is expected to be minimal and markets are thus expected to be in a range, but do not be surprised if you see a bounce after the Fed meet. In the short term, wait to see a market bottom before opening your purses for the Christmas sale.

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