India Markets Weekahead: Take some profits off the table

May 29, 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

After a month of correction and consolidation, the Nifty finally gained enough momentum to cross the 8,000 mark with a gain of 5.2 percent during the week. Positive global cues, an upward revision in monsoon forecast, upbeat Q4 numbers from key large caps like L&T and ITC and an increased likelihood of the GST bill being passed during the monsoon session of parliament boosted sentiment.

Data for the week suggests FIIs still have a cautious view on Indian equities as they sold stocks to the tune of $43.8 million. L&T was the top Nifty gainer at 17 percent after its management gave an upbeat outlook post an estimate-beating Q4 performance.

The coming week marks the end of corporate Q4 earnings. Coal India, Hindalco, Tata Motors, M&M, Sun Pharma, Aurobindo Pharma and NTPC will report their numbers during the week.

Asian markets are expected to react to comments from U.S. Fed chief Janet Yellen, who said the central bank should raise interest rates “in the coming months” if the economy picks up as expected and jobs continue to be generated. In India, automobile companies will be in focus as they start unveiling their monthly sales data for May 2016. Aviation stocks and PSU OMCs will also be watched as a review of jet fuel prices and petrol and diesel prices are due.

In other sector specific news, the U.S. has issued anti-dumping duties of 3 percent to 92 percent on producers of corrosion-resistant steel in Italy, India, South Korea and Taiwan, while those from China face duties of up to 450 percent. This is sentimentally negative for steel companies. Reliance Industries plans to drill 21 wells in four offshore areas, including the deepwater KG-D6 block in the Bay of Bengal, according to reports. The aviation sector could remain in focus in the coming weeks as the ministry of civil aviation expects to put in place a new aviation policy for cabinet approval. The draft policy has suggested tax incentives for airlines, setting up of no-frills airports and providing viability gap funding for carriers to bolster regional air connectivity. If approved, it will be positive for the aviation sector and infrastructure players.

On the macro front, Markit Economics will unveil its monthly survey on India’s manufacturing sector and services sector for May on Wednesday and Friday respectively. Manufacturing PMI fell to 50.5 in April from 52.4 in March, while the Services PMI fell to 53.7 in April from 54.3 in March.

On the global front, the important U.S. nonfarm payroll data is expected on Friday, while China will report manufacturing and services PMI numbers on Wednesday. If the trend of weak data continues, Chinese equities could lead a global market sell-off. Commodity stocks would therefore be in focus during the week.

Global crude oil prices will continue to swing as an official OPEC meeting is scheduled on Thursday. Just as the Doha meeting in April ended without a deal to freeze oil production, the upcoming meeting is unlikely produce any major deal on production cuts.

Coming back to Indian markets, after rallying to cross the psychologically important 8,000 mark, any further gains for the Nifty will depend on the monsoon’s progression. It would be advisable to take some profits off the table in the coming week as we could witness a correction once the index gets into the range of 8,200-8,250.

 

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