India Markets Weekahead: Bulls back on track, buy on dips

March 20, 2016

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Markets consolidated during the week and at one point threatened to break Nifty 7,400 levels. But the index rallied to close above 7,600 points, up 1.25 percent for the week. The gains were part of an Asian rally triggered by a strengthening of regional currencies against the dollar.

A woman walks past the Reserve Bank of India building in New DelhiMarkets reacted positively to the U.S. Federal Reserve’s decision to keep benchmark rates unchanged, and a surge in oil prices also contributed to the rally. The rupee continued to strengthen against the dollar to end the week at 66.3. FIIs were net buyers to the tune of $493 million during the week.

The U.S. Fed scaled down its forecast for the number of rate increases to two in 2016 from an earlier projection of four. It cited increased market volatility, global growth concerns, and softness in exports and business investments as the prime reasons for the decision. The statements were far more dovish than markets had expected, resulting in sharp rallies in commodities, emerging markets and commodity-related currencies.

Back home, the budget session of parliament was a fruitful one compared to the earlier two sessions – six bills were passed including the Real Estate (Regulation and Development) Bill and Aadhaar Bill. There are hopes that the GST Bill may be pushed through in the second half of the budget sessions scheduled on April 25.

Various corporate news dominated the street, the prime one being Lupin after the U.S. FDA made negative observations about its manufacturing plant in Goa. The stock tanked 17 percent during the week. Also worth noting was the sharp rally in cement shares on the back of rising cement prices.

The government has cut small savings rates which affect PPF, Kisan Vikas Patra and Post Office deposit schemes, among others. This indicates a lower rate regime going ahead.

The coming week is a truncated one as stock markets will be closed on Thursday and Friday due to Holi and Good Friday. The next major trigger for Indian markets will be corporate Q4 results which start on the second week of April. Also, the RBI’s policy meet in April will be another key event to watch out for. With favourable data and fiscal prudence on its side, it is widely expected that the central bank will cut rates by at least 25 bps. An unexpected 50 bps rate cut will be a big boost for markets.

On the global front, U.S. existing home sales and new home sales data will be unveiled on Monday and Wednesday respectively. The country will also unveil Q4 GDP data on Friday while the Eurozone Market PMI Composite Index data for March will be unveiled on Thursday.

With the Nifty inching above the 7,600 mark, we could see levels closer to 8,000 before the RBI’s next monetary policy meet on April 5. However, considering the sharp rally from the lows post the Union Budget, we might also see correction in the range of 7,700-7,900 before the index touches the psychological barrier. For the time being, investors should hold their positions and buy on dips.

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