India Markets Weekahead: Prepare for the next big move

May 1, 2016

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

 

The Nifty was volatile within a 150-point band during the week, failing yet again to cross the 8,000 mark and closing with a minor loss of 0.6 percent at 7,850. FIIs were net buyers to the tune of $252.48 million. The rupee remained flat, ending at 66.4 against the dollar.

RTXAOKG (layout (comp)).jpg Central bankers kept markets jittery, with inaction by the European Central Bank, the U.S. Federal Reserve and the Bank of Japan resulting in a sharp drop in global equities, particularly Japan’s Nikkei. The U.S. dollar weakened as the yen soared to hit an 18-month high against the greenback. Gains were also witnessed in gold as a safe-haven asset.

Coming to the domestic earnings season, disappointments came from ICICI Bank, Idea Cellular, HCL Tech and Cairn India, while Vedanta, ACC, JSW Energy and Biocon sprung positive surprises for the Street. The major highlight for the week was ICICI Bank’s results, with profit after tax declining 76 percent on a sharp rise in provisioning.

In sector-specific action, the RBI has initiated steps to regulate peer-to-peer (P2P) lending. The central bank’s proposal to register P2P lending platforms as non-banking financial companies could be negative for NBFCs and micro-finance companies.

In the ongoing tussle between telecom companies and regulator TRAI, the latter told the Supreme Court that it is ready to reconsider the penalty for call drops if companies agree to compensate consumers with an equal number of free calls. This could affect the telecoms’ average revenue per user.

Coming back to markets, the coming week is also expected to be volatile and the next batch of corporate results will be closely watched. Some of the important companies declaring their earnings are HDFC, Adani Ports, Eicher Motors, Hero MotoCorp and Siemens.

Automobile stocks will be in focus as companies start unveiling monthly sales volume data for April. Stocks of PSU oil marketing companies will also be watched after they increased fuel prices. On the political front, disruptions and adjournments in parliament means there is very little hope for the passage of key legislations in the ongoing budget session, including the GST and the bankruptcy bills.

Globally, the coming trading week will be a truncated one with China and the UK closed on Monday, Japan shut for most of the week, and European indexes closed on Thursday.

On the economic data front, China’s official April manufacturing and services PMI will be announced on Sunday. Markit Economics will announce the Nikkei Japan Manufacturing PMI, Markit Eurozone Manufacturing PMI and the U.S. Manufacturing PMI on Monday. The Caixin China General Manufacturing PMI will be released on Tuesday and non-manufacturing PMI will come out of Thursday. Monthly U.S. non-farm payroll data for April 2016 will be released on Friday.

RTX18ABW.jpgAmong domestic macro economic data, Markit Economics will release the India Manufacturing PMI for April 2016 on Monday, while the Nikkei India Services PMI will be come out on Wednesday.

We are now approaching that time of the year when the “Sell in May and go away” headline will keep popping up from experts and the media. We need to see if there is follow-on selling in global markets and whether India’s macro data or earnings will save domestic markets from a sharper cut. Global indexes have been severely overbought, and even the Nifty has rallied 17 percent from its lows of 6,800 in just two months, so a correction was overdue. I see the present fall as a healthy correction and don’t expect the Nifty go much below 7,700-7,750.

What seemed like a possibility for the Nifty to cross the 8,000 mark just two weeks ago has now turned out to be a far-fetched dream. Though the odds are against it, any positive surprise on the global front could change the index’s direction. Any move closer to 7,950-8,000 could be used to book partial profits and re-enter closer to 7,750-7,800 for the next couple of weeks. I continue to be bullish for the long term and believe the next big trigger would be the arrival of monsoons. Till then, continue to rejig your portfolio and prepare for the next big move.

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