India Markets Weekahead: Nifty set to move higher

July 3, 2016

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

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File Photo: A stock broker looks at a terminal while trading at a stock brokerage firm in Mumbai

Brushing aside the Brexit fallout, the Nifty jumped 2.9 percent for the week to close at 8,328 points, with mid-caps and small-caps rallying nearing 5 percent. Indian markets chose to look at the brighter side of news flows, which is typical of a bull market.

Triggers in form of the 7th Pay Commission, good progress of monsoon and central banks of major economies promising to step up stimulus helped market sentiment. The rupee too appreciated nearly 1.5 percent for the week on RBI support to end at 67.30 against the dollar. FIIs were net buyers to the tune of $102 million.

Bulls got a shot in the arm after the Union Cabinet approved a long-awaited pay hike for central government employees, which is expected to benefit over 10 million current and retired workers. The decision led to gains for sectors like consumer discretionary, FMCG and automobiles, which in turn lifted overall market sentiment.

Global indices bounced after various central banks turned vigilant after Britain voted to leave the EU. The Bank of England signalled that it may cut interest rates within months while the U.S. Fed is unlikely to raise interest rates this year. The European Central Bank is considering easing norms for bond purchases in its stimulus programme.

In stock specific action, IT stocks fell on concerns that losses for the British pound and euro will adversely impact Indian IT companies’ revenue in dollar terms. L&T gained as much as 7.5 percent after it announced an IPO of its subsidiary L&T Infotech, which will be open for subscription on July 11.

Maruti Suzuki’s June sales volumes came in below estimates (down a yearly 14 percent) mainly due supply disruption at vendor Subros, which had a massive fire at its plant. Ashok Leyland’s M&HCV sales grew a healthy 8 percent, and M&M’s overall sales were up 13 percent driven by a healthy growth in both the automotive and tractor segments. Sales are expected to pick up going ahead as rural demand is likely to revive given the pick-up in monsoon rains.

On the macro data front, June manufacturing PMI scaled a 3-month high rising 51.7 from 50.7 in May due to a sharper rise in new orders. May core sector data was weak at 2.8 percent vs. 8.5 percent in April. Coal output improved while cement and electricity data disappointed. Overall, it was a mixed bag.

With bulls getting all the necessary triggers last week, markets will now look forward to the monsoon session of the parliament starting July 18, where the all-important GST Bill will be tabled. With the government’s increased strength and support from some opposition parties in the Rajya Sabha, the long-pending reform will hopefully be passed. The monsoon has not disappointed so far, and its progress will be closely watched during the week. Among domestic macro-economic data to watch, the Nikkei India Services PMI for June will be declared on Tuesday. It fell sharply to 51 in May from 53.70 in April.

On the global front, U.S. markets will be shut on Monday due to Independence Day. On the macro data front, UK construction PMI data for June will be unveiled on Monday, while its services PMI data for June will be unveiled on Tuesday. On Wednesday, U.S. ADP non-farm employment change and U.S. ISM non-manufacturing PMI for June will be unveiled. UK manufacturing production data for May and data on crude oil inventories in the U.S. will be unveiled on Thursday. U.S. nonfarm payrolls and U.S. unemployment rate data will be unveiled on Friday.

With the Nifty crossing the psychologically important 8,300 mark convincingly, the stage is set for the index to touch 8,450-8,500 levels soon. The monsoon session of the parliament will provide the necessary trigger for markets as a number of important bills including the GST bill will be tabled. I would advise booking partial profits as recent gains have been quite sharp and a correction may happen when least expected. In case we move beyond Nifty 8,600 before the GST bill is passed in parliament, the risk-reward ratio may not be favourable for investors.

 

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