Stay Tuned—Domestic Macros To Bring Markets Back On Track
Bulls are striving hard to be back in the reckoning by slugging it out with the bears in the Indian stock markets. The implementation of GST from July 1 along with the approval in J&K had triggered vigorous volatility in the markets, with even the GST protagonists unsure about the impact. The only surety for now is the increase in direct and indirect tax collection for the Central and state governments. However, strong domestic macroeconomic numbers are all set to offset the GST ambiguity and the geopolitical risks rising across the globe.
Macroeconomic numbers following the GST came in quite favourable for the bulls, resulting in continuation of consolidation in the markets. The government reported 3.6% increase in Eight Core Industries (ECI) for May 2017, compared to the previous period. Moreover, India's fiscal deficit has reached Rs 37.3 lakh crore to 68.3% of the FY18 target. The external debt too shrank 2.1% to USD 471.9 billion for March-end. The services PMI has expanded at its fastest pace in 8 months in June 2017 to 53.1, driven by hike in demand and new orders. Going forward, inflation is expected to continue to be lower with lower farm prices and uncertainty of GST. However, IIP may be seen rising for May 2017. Auto sales numbers for June are expected to remain a mixed bag as auto companies have slashed their prices to attract more sales post-GST.
On the geopolitical front, tensions are brewing in the Asian sub-continent. North Korea launched its uncoordinated ICBM missile test that landed in the sea of Japan, the area utilised for commercial and fishing activities. The US and Japan may tolerate the North Korean audacity, but it may provoke China to take action against the country. Indo-China border issues have heightened tensions between the two neighbouring countries, dampening cross-border trade and tourism. Nevertheless, Prime Minister Modi’s visit to Israel assured better defence technology deals to counter security risks from China and Pakistan.
Coming back to the domestic markets, the FIIs have turned net sellers, while the DIIs have been net buyers in the Indian markets last week. The Q1FY18 corporate earnings are at the doorstep, which will direct the markets in the sessions to come. The progress of monsoon and the positive impact of GST on specific sectors such as logistics can be looked at by traders and investors. Otherwise, buying on dips is the best strategy for investors. The monsoon and GST outcomes would be mostly seen during September 2017. Few sectors like FMCG look positive even now as companies have maintained their rates for old stocks, irrespective of higher tax incidence post-GST. Also, agro-based industries, defence and majorly infra sectors remain a good bet in an otherwise indecisive market. The Ransomware attack may lead to some delays in IndoEuropean IT project implementations. We remain positive on the markets where we see Nifty heading towards 10700-11200 even now, post a strong move towards 9930-9950.