India Markets Weekahead: Buoyancy continues but calls for caution

March 27, 2016

Stock broker looks at a terminal in Mumbai

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

Indian markets ended the truncated week 1.5 percent higher on the back of increasing expectations of a 50 bps rate cut by the Reserve Bank of India at its policy meeting on April 5. The rupee strengthened against the U.S. dollar at 66.84. FIIs were net buyers to the tune of $675.8 million during the week.

Banking stocks were in focus after the government announced reduction in interest rates on various small savings schemes for the first quarter of 2016 based on the prevailing G-Sec (government securities) yields, triggering expectations of a bigger rate cut from the RBI.

On the macro front, India’s current account deficit narrowed to 1.3 percent of GDP in December 2015 from 1.7 percent of GDP in September 2015. The contraction was primarily on account of a lower trade deficit. Net FDI picked up in Q3 after moderating in Q2. The Foreign Investment Promotion Board (FIPB) gave its nod to 15 FDI proposals worth 73 billion rupees out of 33 foreign investments proposals it received.

The defence minister cleared the long-anticipated Defence Procurement Policy of 2016 with bold changes, including a first-time emphasis on indigenously designed equipment. A new procurement class termed Indian Designed, Developed and Manufactured (IDDM) category has been created as the most preferred category for buying equipment, which would be favourable for the Indian players such as BEL, Reliance Defence and BEML.

Bharti Airtel signed an agreement with American Tower Corporation to sell its 1,350 towers in Tanzania for about $179 million. Bharti has been steadily reducing its assets in Africa, which is seen positively by industry watchers. But problems closer home including a pending court decision on penalty on call drops and the possible effect of Reliance Jio’s impending 4G launch could continue to exert pressure in the near term.

The upcoming week is expected to be volatile due to expiry of March derivative contracts. The week will also mark the end of the financial year, and fund managers are expected to boost markets to prop up year-end NAVs.

Shares of Aurobindo Pharma, Bharti Infratel, Eicher Motors and Tata Motors Ltd. (DVR) are likely to hog the limelight as they will be added to the Nifty index with effect from April 1. Tata Motors Ltd. (DVR) enters as an additional stock, turning the index into a basket of 51 stocks. Also, the three outgoing stocks, namely Cairn India, Punjab National Bank and Vedanta, will be watched.

Auto stocks will be in focus as companies will start reporting March sales data. The implementation of infrastructure cess on cars and sports utility vehicles (announced in the Union Budget) will also kick in from April 1.

An increase in excise duty on tobacco products will also come into effect from April 1, and shares in ITC could see action as a result. The regular fuel price review for PSU oil marketing companies is due on March 31, and airline stocks will also be in focus as a monthly review of jet fuel prices is due on the same day.

Globally, Markit Economics will announce the Caixin China General Manufacturing PMI, the Nikkei Japan Manufacturing PMI, the Markit Eurozone Manufacturing PMI and the Markit U.S. Manufacturing PMI for March 2016 on Friday.

Apart from the RBI policy review on April 5, there is no other near-term trigger in sight for Indian markets as corporate results and state elections are still few weeks away. The Nifty is likely to consolidate in the 7,600-7,900 range till the central bank’s monetary review. I would suggest partial profit booking as the best of expectations would be priced in if the index moves closer to 8,000 points.

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