India Markets Weekahead: Book some profits as markets will consolidate

April 17, 2016

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

Brokers trade at their computer terminals at a stock brokerage firm in Mumbai January 6, 2015. REUTERS/Shailesh Andrade

Brokers trade at their computer terminals at a stock brokerage firm in Mumbai January 6, 2015. REUTERS/Shailesh Andrade

Markets rallied nearly 4 percent during the truncated week on the back of positive domestic and global cues. The Nifty touched the psychological important 7,850 mark, but mid-caps and small-caps underperformed the index. FIIs were net buyers to the tune of $82.92 million.

A stronger-than-expected China trade data for March and easing of the Japanese yen against the dollar lifted global sentiment, while Indian markets cheered the forecast of an above-average monsoon. To add to the good news, retail inflation fell to a six-month low in March, and industrial activity rose 2 percent in February after declining for the previous three months. The combination of these factors raised hopes of a further rate cut by the central bank.

With the country expected to receive good monsoon rains after two years of drought, shares related to agriculture like farm inputs and FMCG stocks gained sharply in excess of 10 percent. A good monsoon could boost farm incomes, boosting demand. Automobile shares also gained on expectation of a further rate cut by the RBI.

In a further setback to the beleaguered pharma sector, Alkem Labs has been accused of fudging data on clinical trials of an antibiotic and brain disorder drug. In another development relating to the Tata Group, TCS and Tata America International Corp have been slapped with a $940 million fine in the U.S. in a trade secret lawsuit. Shares of TCS, which will report its earnings on Monday, may come under pressure.

After a monsoon forecast-based rally, the next major trigger for markets will be corporate results for March quarter. Some key results to be announced are TCS, Wipro, LIC Housing Finance, HDFC Bank, Cairn India and IndusInd Bank. IT major Infosys will be in the spotlight on Monday after it announced a better-than-expected results for the fourth quarter, which is seasonally a weak quarter. More importantly, its guidance for FY17 came in ahead of expectations.

DCB Bank beat estimates with its net profit rising 10.5 percent on a yearly basis in Q4 and 68.8 percent compared to the previous quarter.  After two quarters of underperformance, we should see some positive action in the stock.

Coming to corporate performance as a whole, aggregate revenue of companies’ ex-financials are expected to rise by a marginal 1 percent to 2 percent. Consumer discretionary companies are expected to do well with the automobile sector leading from the front. The metals sector would continue to report losses due to low commodity prices. Industrial capex continues to remain sluggish; roads, rail and power sectors remain the only bright spot on the infra side. Cement demand witnessed strong recovery in Q4 on the back of a boost in infrastructure spending in the north and central regions.

India’s WPI inflation data for March is scheduled to be released on Monday, while the European Central Bank’s monetary policy statement and U.S. initial jobless claims will be released on Thursday.

Coming back to markets, considering the sharp gains recently and positive news flows, we could see the Nifty crossing 8,000 in the coming week. In just eight weeks, we have swung from utter despair to a possible euphoria where investors who were left behind may jump in to buy. It would be prudent to book some profits as markets need to consolidate or correct marginally before the next sustainable move.

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