India Markets Weekahead: Nifty at 8,000 – the wait just got a little longer

May 15, 2016

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

The 8,000 mark remained elusive for the Nifty, although the index managed to gain 1 percent during the week despite Friday’s fall. Investors had initially cheered passage of the new bankruptcy law in parliament, but concerns arising over amendments to the country’s tax treaty with Mauritius weighed on bourses. Dismal headline inflation and industrial production numbers worsened sentiments. FIIs continued to be net buyers of shares to the tune of $89.53 million during the week.

RTXAOKG.jpgLower-than-expected annual IIP growth of 0.1 percent was mainly driven by a sharp decline in production of capital and consumer goods, which means that growth momentum remains vulnerable. A nationwide strike by jewellers may also have impacted industrial production. CPI rose to 5.39 percent, which is above the central bank’s comfort zone and reducing the odds of further rate cuts.

The banking sector was in the limelight as the RBI proposed additional risk weight and higher standard asset provision for commercial banks with respect to large lending to a single borrower. The move is expected to limit the risk posed to banks when a large corporate loan turns bad.

The earnings season has so far been better than expected. This week, we saw Cadila Healthcare, IL&FS Transportation, Manappuram Finance, Nestle India and Arvind posting good results. Allahabad Bank, Dr Reddy’s, OBC and Vardhman Textile reported disappointing numbers while Asian Paints and Havells were in line with expectations. Good earnings were supported by lower raw material prices and cost savings, and not because of higher volume or revenue growth. Going ahead, we could see the trickle-up effect on the overall economy (subject to good monsoon) which will trigger volume growth. Investors will closely watch the next batch of Q4 earnings – some prominent ones reporting their results in the coming week are PNB, Lupin and ITC. Globally, markets across Asia are expected to react to the crucial China IIP data for April, which grew by a lower-than-expected 6 percent

RTX18AC3 (layout (comp)).jpgOn the political front, counting of votes for assembly elections in Assam, Kerala, Tamil Nadu, West Bengal and Puducherry will take place on Thursday. The outcome may not have much bearing on markets as expectations of a BJP victory are low except in Assam.

In the macro-economic front, WPI inflation for the month of April is scheduled to be released on Monday. It stood at -0.85 percent in March as compared to – 0.91 percent in February. On the global front, Japan’s IIP data for the month of March and euro zone trade data for the month of March are due on Tuesday. Japan’s GDP data is due on Wednesday and U.S. initial jobless claims data for the week ended May 13 is due on Thursday.

Coming to market outlook, the Nifty is presently unable to trade beyond the 7,750-7,950 range. Hopefully, the onset of monsoon will provide the necessary upward thrust. If the Nifty is able to cross the 8,000 mark, the momentum could push the index to 8,400-8,450 in the next one or two months.

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