Rains, rupee, reforms expected to lift equities….says Rohit Vaid in Market Outlook
Healthy monsoon rains, more economic reforms and a firm rupee are expected to support the equity markets’ upward trajectory in the coming week.
According to market observers, clarity on Britain’s exit from the EU (Brexit) and increased chances of stimulus measures expected to be initiated by global central banks will provide the incentive for investors to chase prices.
“Domestic markets are expected to continue to behave in line with global sentiments in the near-term. However, we expect the market to remain bullish,” said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors.
Last week, the Indian markets gained momentum on the back of resurgent Asian and European markets which recovered after clarity emerged on the modalities of Brexit.
Further, global investors were hopeful that international central banks might initiate major stimulus measures to protect growth.
“The global situation will closely be watched, specially the GBP (Great British Pound) movement and the actions of central banks,” Devendra Nevgi, Chief Executive of ZyFin Advisors, told IANS.
Other global events such as the release of US FOMC’s (Federal Open Market Committee’s) June meeting minutes, along with US jobs’ data, are expected to influence investors’ sentiments.
“The rate rhetoric should re-appear on the radar next week with US jobs data scheduled for release later in the week,” Anand James, Chief Market Strategist at Geojit BNP Paribas Financial Services, told IANS.
“Minutes of recent FOMC meeting will also be released on July 6, which will be approached with the previous week’s positive GDP and consumer confidence figures in the background.”
The minutes assume significance as they can yield cues on when the next rate-hike cycle might start.
Earlier, the US FOMC had decided to maintain its key lending rates. The US Fed signalled its intention to limit the times it might increase key lending rates due to a weak domestic jobs market.
A hike in the US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.
On the domestic front, the increased chances of the GST (Goods and Services Tax) bill’s passage during parliament’s monsoon session from July 18 to August 12 can lead to further appreciation in prices.
Recently, senior government officials said that GST is the top priority of the ruling party’s agenda during the upcoming session.
“The Modi-led NDA government is very hopeful of passing of GST in the monsoon session of parliament,” Aggarwal said.
Apart from GST, investors will keenly follow the progress of monsoon rains.
“The progress of the monsoon, especially the deficit and the geographical spread of rains will be of keen interest. This will also impact sectors associated with farm and rural areas,” James told IANS.
Besides, sector-specific action will continue on the back of the government’s decision to accept the Seventh Pay Commission’s recommendations.
The recommendations entail an additional expenditure of Rs 102,100 crore. This will further boost the stocks of several sectors like realty, consumer durables and non-durables.
“The positive effect of the 7th Pay Commission’s recommendations being approved is likely to continue in the next week as well,” said Dhruv Desai, Director and Chief Operating Officer of Tradebulls.
“Indian equity markets are likely to face some volatility due to profit booking at higher levels in the coming sessions.”
In addition, the rupee is expected to remain stable during the week.
“Strong pickup in the monsoon, expectation for the passage of the GST bill and income effect from 7th Pay Commission (recommendations) can keep the rupee attractive,” Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, told IANS.
“Indian bonds can continue to gain, as the world over, bond yields have fallen post Brexit.”
The Indian rupee is predicted to range between 66.50 and 67.30 in the very near term.
The Indian equity indices were catapulted to their new highs for the year during the just concluded weekly trade on July 1, as positive global and local cues, amidst further clarity on Brexit modalities boosted investors’ sentiments.
The equity markets rose for five consecutive sessions to gain around three per cent during the week.
The 30-scrip sensitive index (Sensex) of the BSE closed the week’s trade with a massive gain of 777.91 points or 2.95 per cent at 27,144.91 points.
Similarly, the 51-scrip Nifty of the National Stock Exchange (NSE) surged to 8,328.35 points — up 239.75 points or 2.96 per cent.