July 29, 2018 / 6:10 AM / 21 days ago

India Markets Weekahead: RBI policy meet in focus

Markets gained on optimism over GST rate cuts and the simplification of filing returns after the latest GST council meet. Investor sentiments were boosted after the Narendra Modi government defeated the no-trust motion in parliament.

A guard walks past the NSE (National Stock Exchange) building in Mumbai, India, February 9, 2018. REUTERS/Danish Siddiqui/Files

Upbeat company results so far and optimistic management commentary also lifted sentiment and the Nifty scaled a new all-time high. It ended at 11,278, up 2.4 percent.

The much-awaited bounce in the mid-cap and small-cap segment is finally unfolding. The Nifty Midcap 100 index registered 4 percent gains, while the smallcap index climbed around 5.2 percent during the week.

Globally, the United States and the European Union have agreed to negotiate tariff-free trade. Tariffs on both sides will be reviewed and provisions to reform the WTO will also be looked at. This too aided market sentiments.

With Brent crude prices falling below $75 a barrel, there’s some relief for the rupee - currently trading at 68.75 per dollar.

The PSU Bank index gained 10 percent during the week after banks and financial institutions signed the inter-credit agreement (ICA) that will bind banks to loan restructuring if 66 percent of them agree.

SBI, PNB and LIC entered into the ICA to fast-track resolution of stressed assets of 500 million rupees or more that are under consortium lending.

In stock-specific action, two key acquisitions dominated the headlines during the week. Hindalco’s acquisition of Aleris and UPL buying Arysta. Both stocks gained after the announcements.

Two-wheeler stocks were in focus after Bajaj Auto announced its quarterly results, which missed estimates. The management reiterated its strategy of pursuing market share over margins and to focus aggressively in the entry-level segment. Similarly, Hero MotoCorp’s first-quarter numbers were dented.

Results continued to pour in during the week and were more or less in line or better than expectations. Dr. Reddy’s Laboratories, Yes Bank, Biocon, Petronet LNG, HCL Tech, Ambuja Cements, JSW Steel, BHEL, Asian Paints, Glaxo Pharma, L&T, ACC beat market estimates. Larsen & Toubro, Reliance Industries, ITC, Bharti Airtel, JSW Energy, Tata Power, Colgate numbers were in line with market estimates. On the other hand, Maruti Suzuki, ICICI Bank, Hero Motocorp, Bajaj Auto, and Hindustan Zinc numbers missed estimates.

On the IPO front, HDFC AMC got a tremendous response to its issue, which was oversubscribed 83x overall. Qualified institutional buyers and non-institutional bidders were subscribed 192x and 195x, while the retail portion was subscribed 6.6x.

For the coming week, the RBI policy meeting on Wednesday will be in focus. After a period of more than four years, the RBI raised its benchmark policy repo rate unanimously by 0.25 percent to 6.25 percent in June and kept the stance neutral.

The panel is likely to maintain the status quo. It could adopt a wait-and-watch stance as outlook on inflation remains stable and there is uncertainty surrounding the global policy stance adopted by various central bankers. The only reason for a rate hike by the RBI at this juncture could be to stem the rupee depreciation.

Corporate earnings this week include NTPC, Axis Bank, HDFC, Idea Cellular, Tech Mahindra, IDFC, Shree Cement, Dabur, Power Grid, Tata Motors, Vedanta, Indiabulls Housing Finance, Marico, Nestle and Titan.

On the macro data front, IIP data for June will be declared in the coming week. IIP rose 3.6 percent in May and 4.6 percent the preceding month. Manufacturing PMI for July will be announced on Wednesday. It rose to a six-month high of 53.1 in June. Services PMI for July will be announced on Friday. It rose to 52.6 in June from 49.6 the previous month.

On the global front, it’s an action-packed week with a host of macro data and three central bank rate decisions. The U.S. Federal Reserve will declare its interest rate decision on Wednesday. The rate decisions of Bank of Japan and Bank of England will be watched.

The mid-cap and small-cap segment seems to have bottomed out. The macro environment is getting benign. It’s time to have a fresh look at these stocks and average out the investments. Since the extended underperformance of these sectors compared to the headline index has been unprecedented, we could now see outperformance for a while.

About the Author

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.

The views expressed in this article are not those of Reuters News.

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