India Markets Weekahead: Parliament holds the key

July 17, 2016

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

The Indian parliament building is pictured behind marigold flowers in New DelhiThe Nifty rallied past the psychological mark of 8,500 for the first time in 11 months to close at 8,541. Global markets were buoyed by better-than-expected U.S. jobs data and cheered the victory of Japan’s ruling coalition in the upper house election. PM Shinzo Abe is expected to unveil a fresh stimulus package to help the country’s stagnant economy.

The rupee gained 42 paise to close the week at 67.48 against the dollar and FIIs were net buyers to the tune of $481.7 million for the week, out of which $220 million was invested on Friday.

Key macro data announced during the week were CPI, WPI and IIP. Retail inflation inched up to a 22-month high of 5.77 pct in June mainly due to high food inflation and wholesale inflation rose to a 20-month high of 1.62 percent. On the brighter side, May IIP was up a higher-than-expected 1.2 percent, while exports grew for first time in 19 months in June and trade deficit declined 25 percent to $8.12 billion during the same month.

Coming to sectoral action, the chairman of NHAI announced that 97 road projects which entail an investment of 1 trillion rupees will be awarded in 2016-17. The development is positive for the road development sector, especially for EPC contractors. PSU Banks continued their rally on the back of news that the government would release the first tranche of its proposed 250 billion-rupee capital infusion.

Markets are also speculating on the next RBI governor, who will be under immense pressure to reduce benchmark rates.

The IT sector hogged the limelight during the week with two bellwethers – TCS and Infosys – keeping the street busy. TCS met expectations while Infosys disappointed the Street as it reduced its revenue growth guidance for FY17. Reliance Industries reported a healthy growth with record GRMs supported by inventory gains.

In the upcoming week, Q1 earnings will set the tone for markets. Hindustan Unilever, UltraTech Cement, Wipro, HDFC Bank, Cairn India, ITC, Kotak Mahindra Bank, and Axis Bank are some of the key companies which will report their numbers.

The monsoon session of parliament begins on Monday and investors are hoping that the Goods and Services Tax (GST) bill will finally be passed. Regarded as the single biggest taxation reform since independence, GST will simplify and harmonise the indirect tax regime in the country and its passage could result in an extended rally. However, post the initial euphoria, markets will debate on issues which will crop up when the tax reform is actually implemented, including the inflationary pressure on the economy.

On the global front, a meeting of the governing council of the European Central Bank (ECB) on monetary policy will be held next week. Data on Nikkei Flash Japan Manufacturing PMI will be out on Friday. Markit Flash Composite PMIs for Germany, France and the euro zone for July will also be released on the same day. In the U.S., data on housing construction for June will be out on Tuesday while data on existing home sales for June will be released on Thursday.

With global central banks in renewed stimulus mode and concerns over Brexit subsiding, we have seen an expanded risk appetite in financial markets including India. But from here on, local factors like quarterly earnings and the monsoon session of parliament will dictate the direction of markets. It would be prudent to book partial profits and keep a watch on parliament proceedings as any delay in passage of the GST bill could make stocks jittery.

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