India Markets Weekahead: Starting the New Year on a positive note

January 3, 2016

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

Markets inched up about 1 percent in a dull week with the Nifty closing at 7,963. The low participation was on account of holidays for major institutions and volumes remained low.

Participants ignored weak core sector data, which contracted 1.3 percent in November after expanding for six straight months. FII activity remained muted for the week, though positive as they bought shares worth $298 million. The rupee was flat at 66.13 per dollar.

A dealer reacts while trading at a stock brokerage firm in Kolkata May 7, 2010. REUTERS/Parth Sanyal/Files

A dealer reacts while trading at a stock brokerage firm in Kolkata May 7, 2010. REUTERS/Parth Sanyal/Files

As for stock-specific activity, aviation stocks had a great run last year and look likely to maintain gains for the first few months of 2016. In line with the fall in global crude oil prices, aviation turbine fuel prices were slashed by 10 percent. The good news of lower input costs is already discounted in stock prices, which have been multi-baggers in the last few months. What is not discounted is a possible bounce back in oil prices this year.

After Sun Pharma and Dr. Reddys, Cadila Healthcare received a warning letter from the U.S. FDA. Either the FDA has become stricter in the last few months or Indian promoters had been successful in concealing the state of affairs in the last few years. However, this problem will continue in the foreseeable future.

Automobile companies reported decent December figures even though analysts were expecting a weak set of numbers. Eicher Motors sales growth stood at 44 percent year-on-year at 5,068 units. Maruti Suzuki sales were up 8.5 percent, while M&M was up by just 4 percent. Ashok Leyland and Tata Motors are yet to announce their sales for December.

The infrastructure sector is getting a big push from the government, which announced various measures during the week to revive the sector. It is set to offer road projects worth 500 billion rupees under PPP model in FY2016-17. The Kelkar panel has suggested ways to revive PPP in infra projects such as increasing concession period for BOT projects, viable gap funding, relaxation of exit norms, etc. This is positive for the infrastructure and power ancillaries sector and should have a salutary effect on the economy.

Employees work at the assembly line of Toyota Etios cars inside the manufacturing plant of Toyota Kirloskar Motor in Bidadi, on the outskirts of Bengaluru, India, November 7, 2015. REUTERS/Abhishek N. Chinnappa/Files

Employees work at the assembly line of Toyota Etios cars inside the manufacturing plant of Toyota Kirloskar Motor in Bidadi, on the outskirts of Bengaluru, India, November 7, 2015. REUTERS/Abhishek N. Chinnappa/Files

For the coming week, there are not many triggers except for the Markit Economics outcome of a monthly survey on India’s manufacturing and services sectors. The triggers for markets are only expected from the second week for January when corporates begin announcing Q3 numbers. Among key global data, the Caixin China manufacturing and services PMI data for December is expected this week. The Eurozone Markit PMI composite index for December is also due. In the United States, the crucial non-farm payrolls data for the month is due on Friday.

The Nifty has been hanging around the 7,800-8,000 range for quite some time now in the absence of any fresh triggers. With corporate earnings coming in from the second week, this range may get taken out. The silver lining is that expectations are low from the earnings season, so any positive surprises will have a multiplier effect.

A weekly close above 8,000 levels is likely to reinforce strength in the markets. I am hopeful as I see the government on overdrive and the year would be crucial for their political survival beyond 2019. I am bullish on the markets and expect the Nifty to touch the 8,200-8,300 range in January.

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