Markets began the May derivative series on an optimistic note with key indices witnessing a sharp surge on Friday. Sentiments were boosted by the first inter-Korean summit in more than a decade, where the two countries vowed “complete denuclearisation” of the Korean peninsula.
Back home, increasing optimism of recovery in earnings helped the Nifty inch closer to the 10,700-mark, even as mid-caps and small-caps continued to underperform, ending higher by 0.7 percent and 0.3 percent respectively.
U.S. markets too remained upbeat after a slew of upbeat quarterly results from key companies. Shares of Facebook surged 9 percent after its better-than-expected quarterly earnings.
The rupee continued its fall, depreciating to 66.66 against the dollar from 66.12 last week as demand for the dollar rose on higher U.S. treasury yields, which makes the currency more attractive to risk-taking investors.
Realty stocks were in focus after Maharashtra’s chief minister approved the new Mumbai Development Plan 2034. It was a welcome move for the real estate market as it promises to address the issue of land shortage.
Shares in metals remained weak on the back of soft global base metal prices after the U.S. softened its stance on Russian company Rusal, which accounted for more than 6 percent of global aluminium output last year.
TCS was also in focus after it became the first Indian company to reach $100 billion in market capitalisation. Investor sentiments were boosted by the software service exporter’s strong fiscal fourth-quarter earnings, its best in the last 14 quarters.
On the quarterly results front, Biocon, Yes Bank, Bandhan Bank, SBI Life Insurance, Bharti Airtel and Persistent Systems beat market estimates, while Axis Bank, Maruti Suzuki, Wipro, Ultratech Cement and Rallis India missed expectation. Reliance Industries, ICICI Prudential Life Insurance and LIC Housing Finance were in line with estimates.
Axis Bank reported its first ever quarterly loss of 21.89 billion rupees, but shares rallied as most brokerages maintained their ratings outlook, with the management hoping to achieve stability and improvement in net interest margins in the current fiscal.
Maruti announced a capex of 50 billion rupees for FY19, which is 47 percent higher than FY18. Expenditure will be for new product development and capacity expansion. Bharti Airtel’s profit plunged 77.8 percent to 829 million rupees, hurt by continued pricing pressure in the telecoms sector. Markets, however, seem impressed with company’s metrics.
On the macro front, Fitch refused to upgrade India’s credit rating for the 12th year in a row citing weak fiscal balance. It retained the country’s sovereign rating at BBB- with a stable outlook.
GST collections have been better than estimated, averaging 900 billion rupees a month in the August to March period, totalling 7.19 trillion rupees in the year ended March 2018 amid a steady improvement in compliance. The GST council will meet again on May 4 to discuss a simpler return form and amendments required in the indirect tax regime rules.
The coming week will be truncated with markets remaining closed on May 1 due to a state holiday in Maharashtra. Indexes are expected to react to Reliance Industries’ results, whose showed net profit rising for the eighth straight quarter.
The two-day informal summit between Prime Minister Narendra Modi and Chinese President Xi Jinping will be taken positively by markets since it points towards peace on the borders and greater cooperation between the world’s two most populated countries.
Globally, the FOMC meeting on Wednesday will be an important event watched by investors everywhere. Markets are expecting a status quo this time after the rate hike by the Fed in March. The U.S. jobs report on Friday will be another critical data point to watch out for.
The benchmark 10-year U.S. Treasury yield briefly topped 3 percent, highlighting concerns that rising inflation and interest rates will ultimately weigh on companies and their stock prices. This will be another important factor to keep in mind as a sustained rise could result in outflows from emerging markets including India.
Markets continue to move up as the possibility of adverse news from the macro or geo-political front ebbs, though the rupee and oil prices are a cause of worry.
The earnings season has been benign so far but we could witness the weaker lot announcing their numbers from here on, especially the PSU Banks. However, it could be an opportunity to grab shares at a lower price. I would suggest investing fresh funds as the lower band of this market continues to move up.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.