India Markets Weekahead: Time to restructure your portfolio

April 24, 2016

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

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in Mumbai, March 4, 2015. REUTERS/Shailesh Andrade/Files

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in Mumbai, March 4, 2015. REUTERS/Shailesh Andrade/Files

Markets consolidated like I predicted, with the Nifty ending the week higher by 0.6 pct at 7,899 points. Sentiment remains upbeat due to strong gains in the last few weeks on continued hopes that the RBI may cut policy rates if monsoon is good and inflation stays low. FIIs were net buyers to the tune of $408.3 million.

Banking stocks, especially PSU banks, remained in the limelight after news that the RBI pruned the list of companies whose loans need to be provided for against the risk of default. This is expected to reduce provisioning for non-performing assets which could restrict the negative impact on banks’ bottomline in the fourth quarter of FY16. BSE Bankex outperformed the main indexes, gaining 2.66 percent. ICICI Bank rose 4.54 percent, Axis Bank gained 7.69 percent and SBI added 4.25 percent.

Tata Steel gained 6.37 percent during the week as reports indicated that the UK government is ready to take up equity stake in the company’s UK plants in a rescue deal. It seems the company’s stocks have accounted for all the positives including a bounce in steel prices, and the risk-reward ratio at this juncture does not seem too favourable. I would suggest booking out.

The roads ministry has increased the target for awarding projects by 2.5 times to 25,000 km in FY17. The construction target has also been increased 2.5 times to 16,000 km for the fiscal, translating into building over 40 km of highways a day. This is positive for IRB Infra, ITNL, L&T, Ashoka Buildcon, Sadbhav Engineering and KNR Construction, among others.

Meanwhile, trade data showed that India’s merchandise exports continued to decline on a yearly basis, with the commerce ministry saying the trend is in tandem with other major world economies. But imports shrank even faster, leading to a narrowing of the country’s trade deficit for the third straight month in March to $5.07 billion.

On global front, the ECB left its policy unchanged as expected. President Mario Draghi retained a hawkish stance and maintained that he would use all the tools at his disposal for as long as needed.

Thyrocare Technologies Ltd. is the second diagnostic company after Dr. Lal PathLabs to come out with an IPO. Dr. Lal PathLabs had a stellar debut with a 50 percent listing gain to its issue price of 550 rupees and is presently trading 77 percent higher. Expectations from Thyrocare’s IPO are already building up and applicants will be expecting a minimum gain of 50 percent post listing.

The coming week is expected to remain volatile ahead of the derivative contract expiry on Thursday, and the next batch of quarterly results will determine the direction of markets. Stocks will initially react to Reliance Industries’ Q4 results, which came out on Friday evening. The oil and gas giant beat market expectations on better refining margins, and the stock is expected to open 3-4 percent higher on Monday. Corporate results till date have been better than expected with hardly any disappointments, but the same may not hold true for companies declaring their numbers in the latter half of the earnings season. Some of the prominent names which are expected to declare results in the coming week are UltraTech Cement, Axis Bank, Maruti, Bharti Airtel, Yes Bank, ACC, Ambuja Cements, HCL Tech, Idea and ICICI Bank.

On the political front, the second part of the budget session of parliament will commence on Monday and will conclude on May 13. The government hopes to receive support from opposition parties in passing key legislations including bills on GST and bankruptcy. Markets may react positively if a clear direction for their passage is charted.

On the global front, the U.S. Federal Reserve will hold its two-day policy meeting on Tuesday and Wednesday, where it is likely to hold rates. Data on new U.S. home sales in March will be announced on Monday while data on advance estimates of Q1 March 2016 GDP figures will be announced on Thursday. In Japan, a two-day monetary policy meeting of the Bank of Japan will be held on Wednesday and Thursday. Market participants expect further easing.

The Nifty is struggling near the 7,900-8,000 band. It will be interesting to see if triggers in the coming week like the parliament session and corporate results will provide the index with enough steam to cross the important psychological level. Continuing with my previous week’s view, it would be healthy for markets to consolidate or correct marginally before moving on to the next level. Looking at the resistance in this zone, it would be prudent to book some profits and reshuffle one’s portfolio, weeding out stocks which are not expected to perform.

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