India Markets Weekahead: Book profits at every opportunity

September 11, 2016

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

A volatile week saw the Nifty surging on Tuesday after weak U.S. jobs data, with liquidity gushing in for the next two days followed by a correction on Friday after the ECB left policy rates unchanged. The decision gives room for the U.S. Fed to consider raising interest rates in the near term, which is likely to hit inflows to emerging markets like India. North Korea’s nuclear test also seemed to rattle sentiment. The Nifty finally closed at 8,866, up about 0.7 percent.

The rupee ended with marginal gains at 66.67 against the dollar after the greenback rebounded sharply on Friday post the ECB meeting. FIIs were net buyers to the tune of $311 million, with $209 million coming on Tuesday.

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. Indian shares fell on Wednesday, retreating from record highs hit earlier in the session, as the initial surge after an unexpected rate cut by the central bank was offset by profit-taking and on speculation foreign investors sold blue-chips. REUTERS/Shailesh Andrade (INDIA - Tags: BUSINESS) - RTR4S0O3

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

The IT sector remained in the limelight after TCS and Mindtree both issued profit warning for Q2 FY17, a historically strong quarter for the sector. Construction companies extended gains on reports that four public sector entities – NHAI, NTPC, NHPC, and IOC – are likely to release pending claims worth 393.66 billion rupees to construction companies.

Earlier, the government relaxed norms for payment of dues by public sector companies, asking them to release 75 percent of the arbitral award to construction companies in cases where the state-owned units have challenged the award.

The highlight of the week was Yes Bank shelving its up to $1 billion share sale to institutions. While the bank blamed trading volatility it said had been induced by misinterpretation of rules, its valuation also seemed stretched. On the other hand, Motherson Sumi could successfully complete a fairly priced QIP.

On the macro front, Nikkei India Services PMI rose to 54.7 in August, up from 51.9 in July, its biggest rise for over three-and-a-half years. The headline index has expanded in each of the past 14 months. With manufacturing growth also ticking higher, the seasonally adjusted Nikkei India Composite PMI Output Index climbed to a 42-month high of 54.6 in August from 52.4 in July, highlighting an improvement in private sector activity.

In the coming week, markets are expected to open gap down on weak global cues as the Dow ended lower by 400 points on Friday, its worst fall since the Brexit sell-off. U.S. government bonds weakened on Friday, sending yields to their highest levels since late June amid continued fallout from the ECB meeting and increased speculation that the Fed could raise interest rates this month. Fresh signs that central banks could be backing away from easy-money policies boosted the dollar.

A man looks at a screen displaying news of markets update inside the Bombay Stock Exchange (BSE) building in Mumbai, India, February 11, 2016. REUTERS/Danish Siddiqui/File Photo - RTX2OHWW

A man looks at a screen displaying news of markets update inside the Bombay Stock Exchange (BSE) building in Mumbai, India, February 11, 2016. REUTERS/Danish Siddiqui/File Photo

Back home, key macro data namely IIP and CPI inflation are scheduled to be released on Monday. CPI inflation is seen moderating in August to 5.3 percent from 6.07 percent a month earlier. IIP is likely to have slowed down to 1.4 percent in July from 2.1 percent in June. The progress of monsoon rains will be monitored as it is now 5 percent below the long period average (LPA).

Tata Steel and Coal India are the major companies that will report their earnings for the June quarter in the coming week. Telecom companies will be in focus on account of the ongoing tussle between Reliance Jio and incumbent mobile service operators represented by Cellular Operators Association of India (COAI).

On the global front, the Bank of England will announce its monetary policy decision on Thursday. It had cut bank rate by 25 bps to 0.25 percent and introduced a package of measures designed to provide additional monetary stimulus in its last meeting in August. In the U.S., data on industrial production and retail sales for August will be released on Thursday.

With speculation surrounding a Fed rate hike taking centre stage ahead of its meeting on September 21, the Nifty will find it difficult to cross the 9,000 mark for now. We could be back in the earlier trading zone of 8,600-8,800 until a clear direction is seen. I would continue to advise booking profits at every rise.

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