India Markets Weekahead: Time to deploy cash

May 22, 2016

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

Markets corrected in a volatile week on fears of a rate hike by the U.S. Fed as early as next month. The Nifty closed down 0.83 percent for the week at 7,750. Sentiment was also affected by SEBI’s decision to introduce tighter norms for P-Notes leading to concerns about future foreign equity inflows.

Bombay Stock Exchange building is pictured next to police van in Mumbai A mixed set of earnings also kept markets jittery. However, losses were capped as some support came from the weather department’s forecast that the monsoon had made its much-awaited entry into the Andaman and Nicobar Islands, although its progress might slow down due to an ongoing cyclonic activity in the Bay of Bengal.

FIIs were net buyers to the tune of $295 million during the week; the rupee fell for the seventh consecutive session, while crude oil posted a second straight weekly gain on worries of supply disruptions.

The much-awaited outcome of state assembly elections has strengthened the BJP government’s agenda to speed up economic reforms. The seat math in the Rajya Sabha could now turn favorable for the government as a number of Congress MPs have retired and incoming regional party MPs could be more favourable towards the GST Bill in addition to the ruling alliance’s new MPs and newly nominated members.

New norms for P-Notes are expected to improve transparency and help prevent money laundering; and unlike previous attempts to increase checks on the investment instrument, markets this time exhibited resilience instead of crashing after SEBI’s announcement.

The government is reportedly planning the merger of weak PSU banks with stronger ones, a natural fallout of the NPA mess. However, consolidation is expected to be time-consuming and will be long-term positive for the banking system. A few triggers for PSU banks over the next few months would be recapitalisation, consolidation and partial recovery of NPAs.

RTX1I8F0 (layout (comp))On the results front, ITC, Karnataka Bank, Pidilite, Sundram Fasterners, JSW Steel, Lupin, Tourism Finance and Voltas sprung positive surprises while PNB and Bharat Forge disappointed investors.

The coming week is expected to be a volatile one due to derivative contracts expiry on Thursday. Monsoon will be tracked keenly by the markets as it has become the most important variable for India’s growth after two years of drought. Among key results expected during the week are BPCL, Tata Power, Cipla, Tech Mahindra, Bajaj Auto, GAIL, Tata Steel, L&T, BHEL, SBI and Coal India.

Markets across the world will continue to fret over the possibility of a U.S Fed rate hike. Stocks will also react to the outcome of the two-day meeting of G7 finance ministers which took place on May 20 and 21.

Markets have respected the lower end of the Nifty 7,700-7,750 band despite a slew of adverse news flows. I strongly believe this support would be maintained and we could see a resumption of the rally once monsoon hits the mainland. Utilise this opportunity to deploy cash.

 

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