India Markets Weekahead: Time to ride the rally

April 3, 2016

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

A stock broker looks at a terminal while trading at a stock brokerage firm in Mumbai November 17, 2008. REUTERS/Arko Datta/Files

Markets closed the week with minor losses but chalked up their best monthly gains in more than four years, which is impressive when we consider that the consensus view had pointed towards a weak March. The financial year (2015-16) however gave a negative return of 9 percent as FIIs trimmed their position in Indian equities for much of the year. This has reversed in the last one month post the Union Budget.

U.S. Fed chief Janet Yellen reiterated a need to proceed cautiously in lifting interest rates amid worries over a global slowdown, boosting investors’ risk appetite. On the macro front, the output of eight core industries comprising nearly 38 percent of the weight of items included in the IIP surged 5.7 percent in February, the highest in 15 months. The cumulative growth during April 2015 to February 2016 stood at 2.3 percent.

Bank stocks edged higher after the RBI clarified some of the provisions relating to the Marginal Cost of Funds based Lending Rate (MCLR), which came into effect on April 1. The Supreme Court extended a ban on the registration of new diesel vehicles with engine capacity above 2000cc in Delhi and the NCR until its next hearing. There will be no impact on Maruti as it has a negligible portfolio of diesel cars above 2000cc. M&M has already tweaked its SUV engines to beat the ban.

In a key development in the cement space, UltraTech Cement will buy Jaiprakash Associates’ cement plants for 159 billion rupees ($2.4 billion) including debt. Tata Steel remained in the news after putting its entire UK unit up for sale. It needs to be seen how soon they are able to get a suitor in a depressed market. A sale, as long as it is cash neutral, is positive for Tata Steel. But if there is an additional outgo from Tata Steel to make good the distressed valuation, it would be seen negatively. Sugar sector remained in action with stocks rallying after reports that the country’s sugar output estimate has been reduced by 1.4 percent to 25.64 million tonnes. This is likely to keep sugar prices firm.

For the coming week, markets are initially expected to react to better-than-expected U.S. jobs and factory survey data. The focus will then turn to the RBI monetary policy review on April 5. Central bank chief Raghuram Rajan’s commentary will be closely watched and interest rate-sensitive sectors such as banks, automobile and real estate will be in focus.

In macro data, Markit Economics will unveil India’s manufacturing PMI for March on Monday. It stood at 51.1 in February, unchanged from January. The Nikkei India Services PMI for March will be released on Wednesday. It fell to a three-month low of 51.4 in February.

The Reserve Bank of India (RBI) Governor Raghuram Rajan listens to a question during a news conference after the bi-monthly monetary policy review in Mumbai, India, September 29, 2015. REUTERS/Danish Siddiqui/Files

The next major trigger for markets is expected to come from corporate Q4 results, with Infosys kicking off the season on April 15. On the political front, polling for assembly elections in West Bengal and Assam starts on April 4. Kerala, Tamil Nadu and Puducherry will follow them to the polls. With low expectations for the ruling BJP except in Assam, disappointment would be limited.

With the Nifty trading above the crucial 7,700 mark, it will be interesting to see if the index is able to soar past the 7,750-7,800 barrier post the RBI policy review. Core sector numbers will start improving as infrastructure work has gradually increased in the last few months, and monsoon forecast is expected to be favourable. FII inflows are continuing and I expect domestic fund flows to turn positive as retail money finds its way into a rising market. Overall, there are not many reasons to doubt that the rally will continue.

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