India Markets Weekahead: Wait for the next leg of the rally

May 8, 2016

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

Markets continued to correct and consolidate at lower levels after a sell-off in global stocks. Disappointing domestic macro data and some dismal quarterly numbers also hurt sentiments. The Nifty fell 1.5 percent during the week to close at 7,733. FIIs were net sellers to the tune of $116.6 million.

RTX18ABW.jpgGlobal markets fell after China’s manufacturing activity decelerated in April 2016. With increasing volatility, leaders in China have called for improved supervision of its stock markets and measures to protect investor interest. U.S. indexes also witnessed volatility after data showed weak consumer spending in March 2016 and a slowdown in manufacturing sector. The Japanese yen continued to surge against the dollar after the Bank of Japan’s decision to keep its policy rates unchanged.

Back home, the Nikkei India Manufacturing PMI declined to a four-month low, and services PMI fell to 53.7 in April 2016 from 54.3 in March 2016. However, infrastructure output grew at its fastest pace in 16 months.

On the political front, the Insolvency and Bankruptcy Code, 2016 and the Finance Bill, 2016 were passed in the Lok Sabha. Separately, the finance minister said the government is committed to implementing the general anti-avoidance rule (GAAR) in the country from April 1, 2017.

In sector-specific news, automobile manufacturers are off to a strong start in the new financial year with most segments reporting strong April sales. After a gap of three months, the passenger vehicle segment reported a strong growth of 9 percent. This was mainly led by new launches (Maruti’s Vitara Brezza, Mahindra’s NuvoSport and Tata Motors’ Tiago). With implementation of the Seventh Pay Commission and OROP, the momentum in auto sales is expected to continue on the back of higher consumer spending.

Cigarette makers had to shut down manufacturing to comply with stringent package warning rules after the Supreme Court ordered them to strictly comply with them. The top court also extended a ban on registration of new diesel cars above 2,000 cc in Delhi. The next hearing is scheduled on May 9.

Coming to earnings, Siemens, Castrol India, BASF, TVS Motors and HDFC reported better-than-expected results while Emami, Eicher Motors, Hexaware, Alstom T&D, Adani Ports and TVS Motors missed estimates.

RTXAOKG (layout (comp)).jpg Global markets in the coming week are expected to react to the disappointing U.S. non-farm payroll data for April. Back home, the next batch of quarterly earnings will provide the trigger for markets. Companies reporting their numbers include HUL, Zee Entertainment, Kotak Bank, Asian Paints, Nestle, Glenmark and Cadila Healthcare.

On the macroeconomic front, the government is scheduled to unveil IIP data for March 2016 on Thursday. With strong growth in the core sector, there is hope for an improved performance from industries. Retail inflation and export and import data for April 2016 are also due in the coming week.

On the global front, the Energy Information Administration (EIA) will unveil data on crude oil inventories in the U.S., while the Bank of England’s monetary policy committee meets on Thursday, and Germany’s Q1 GDP data will be unveiled on Friday.

While stocks could continue to be in the correction and consolidation mode for a while, overall earnings have been better than expected and this could lead to upgrades by analysts.  A redeeming feature is that markets have respected the Nifty 7,700-7,750 band and if the index manages to hold on to these levels for a few more days, we could soon witness a new rally.

 

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