Nifty has to stay above 7,550 for the index to head higher
We had mentioned in last week’s closing report that Nifty, Sensex were in no man’s land and that the indices were probably waiting for global cues. In a week of volatile trading in India and favourable macroeconomic data from India and abroad, the major indices of the Indian stock markets rallied to gain around 1% on a weekly basis. Bank Nifty, in particular, gained 3.21%. The trends of the major indices in the Indian stock markets over the week’s trading are given in the table below:
On Monday, the major indices of the Indian stock markets opened higher based on foreign institutional investors’ interest and higher global markets on Friday and Monday. But it could not gain momentum and closed marginally higher over Friday’s close. The minor rally was led by Tata Motors, after it posted robust sales for February and on improved global risk appetite after gains on Wall Street and in Europe last week.
Inflation data was available from the government on Monday and WPI (wholesale price index) inflation remained in the negative zone for a 16th month at (-)0.91% in February as food articles, mainly vegetables and pulses turned cheaper. The Wholesale Price Index-based inflation was (-)0.9% in January. In February last year, it was (-)2.17%. This is the 16th straight month since November 2014 when deflationary pressure has persisted. Food inflation stood at 3.35% in February compared with 6.02% in January, showed official data. Inflation in pulses and onion eased to 38.84% and (-)13.22%, respectively. The rate of price rise in the case of vegetables was (-)3.34%, and for fruits, it stood at (-)1.95%. Price rise in potato was (-)6.28% while that of egg, meat and fish came in at 3.47%.
On Monday, it was reported that rain and hailstorms had hit parts of northern India since Friday, which had flattened wheat, mustard and coriander crops in states like Punjab, Uttar Pradesh and Haryana. BP Yadav, director of India Meteorological Department (IMD) said that while crops had been affected, full damage could not be quantified. Rains were expected to halt for two to three days in the states of Punjab and Haryana, but would resume post March 17th, Yadav said adding that there were worries on the eastern side of the country. These worries are likely to reduce agricultural income and aggregate demand in the country and thus apply pressure on corporate revenues. This will, in turn, apply pressure on the possibility and extent of a bull market in the Indian stock markets for the next few months.
On Tuesday, inflation data analysis revealed that after five months of steady rise, the CPI (consumer price index) had dropped, to 5.2% in February, from 5.7% in January, making the case stronger for another repo rate cut by the Reserve Bank of India (RBI). “The Budget’s focus on fiscal consolidation had already created conditions for the RBI to cut rates; we expect the policy rate to be sliced by 25-50 basis points (bps) in 2016. A benign inflation climate further allows for this; CPI, we believe, will stay soft at 5% average, unchanged from our estimate for fiscal 2016, if India is blessed with a normal monsoon. Given the excess industrial capacity, weak demand and soft commodity and crude oil prices, the impending Seventh Pay Commission payouts are unlikely to swing inflation away from the RBI’s glide path,” said CRISIL in its forecast on inflation.
Other macroeconomic data which was available on Tuesday included IIP (Index of industrial production) data. It dipped for the third month in January, reporting -1.5% growth, compared to -1.2% in December. This was led by a steep fall in manufacturing activity, mainly in industrial and investment related goods. Capital goods continued to be major drag on industrial activity reflecting the investment lull in the economy, while consumer durables output was flat on-year reflecting weak demand. The major indices suffered a sharp correction, and closed about 1% lower than Monday’ close.
Key Indian equity indices were trading in the red during the afternoon session on Wednesday ahead of another crucial meeting of the US Federal Reserve later in the evening. Later in the day, buying resumed and the indices improved to close in the green. On Thursday, it was reported that the US Federal Reserve had kept its benchmark short-term interest rates unchanged amid potential risks to the US economy, signalling the central bank would slow the pace of future interest rate hikes this year. In a statement released after a two-day policy meeting, the Fed said US "economic activity has been expanding at a moderate pace despite global economic and financial developments in recent months," but these developments continue to pose risks. In December, the Fed had raised its target range for the federal funds rate by 25 basis points to 0.25%-0.5%, the first rate hike in nearly a decade, marking the end of an era of extraordinary easing monetary policy. But the turmoil in financial markets and a slowdown in global economy since the start of the year had raised increasing concerns about the strength of the US economy, forcing Fed policymakers to hold off on any further rate hikes since then. In its January policy statement, the Fed had declined to make a judgement about the balance of risks to the US economy, an indication of the uncertainty about the impact of global economic and financial turbulence on the world's largest economy. The changes in the statement on risks signalled that Fed officials were inclined to wait for more time to assess the US economic outlook before raising interest rates again.
On Thursday, Nifty traded above 7,550 for much of the day, following a strong opening, but ended flat. The Sensex also ended flat. Key Indian equity indices were trading in the green during the afternoon session on Friday on positive global cues. The postponement of the interest rate hike on the part of the US Federal Reserve has kept the fixed income-equity investment balance for investors in favour of equity and the global markets have resumed active trading without the earlier ‘wait and watch’ attitude. Foreign institutional investors were also found showing interest in the Indian stock markets. The major indices rallied to close more than 1% over Thursday’s close. Throughout the week, the Bank Nifty and the S & P BSE Bankex were seen improving based on news of government reforms and strict action taken by State Bank of India on Mallya (of Kingfisher Airlines) to recover bad loans.