RBI Policy And Macroeconomic Data Key To The Markets
Indian markets appear to be laying the blame on the geopolitical tensions prevailing between North Korea and US, where the former recently accused the latter of declaring war against it. However, what the international tensions did not do to the markets was done by just one blow from the Indian army's surgical strike against Naga insurgents in Myanmar that washed off crucial support levels of the benchmark indices. The indices declined more than 4.5% in just 7 trading sessions, recording their longest losing streak in 2017. But when we say that markets have turned proactive, the recent fall might have been a result of cautiousness ahead of the corporate earnings and domestic economic data. Experts in a way have hinted at weakness going ahead in the valuations and macroeconomic numbers to be released in October.
Earlier, the decline in GDP growth to 5.7% in June quarter from 6.1% in March had created negative sentiments in the markets. The country has toned down its GDP target for FY18 from 7.3% to near about 6.46.6%. There has been considerable sell-off of dollars out of Indian markets from foreign investors. The fear of future economic growth and its pace persists, which has been refraining fresh buying in the markets. As a result, rupee is seen depreciating against the dollar with higher demand from importers and bankers. As a measure, the government is mulling to inject nearly Rs 50,000 crore for stimulating the economy, but this would be at the cost of fiscal deficit target. The fear that the fiscal deficit would overrun the target is real, as 92.4% of the entire year target has been already reached. The June quarter current account deficit hit the highest level in the last four years at 2.4%. August and September saw a net equity sell-off by FIIs of nearly Rs 18,966 crore. The DIIs bought equities worth Rs 28111 crore during the same period to offset the selloff. The biggest domestic investor and the rescuer of Indian markets, LIC, is said to have poured Rs 29,000 crore as of now into the equities in FY18 and it is expected to invest a total of Rs 50,000 crore.
We are at the September F&O expiry and, going forward, the markets are going to be driven by series of domestic macroeconomic events in the month of October. Among the major events, we have RBI policy review on October 4, where RBI is expected to maintain status quo owing to decelerating growth, marginal inflation and weak global cues. Further, we have September quarter corporate earnings, where major results would start from mid-October. Meanwhile routine macroeconomic numbers like IIP, CPI, WPI, auto sales, manufacturing and service data will have short term impact on the markets.
Nevertheless, markets have witnessed almost a continuous rise post demonetisation on a monthly basis. Even the last two months have seen consolidation but not major correction. considering the long-term time frame. Hence, we remain bullish on the markets, but with some cautiousness, as markets are trailing at their crucial supports, which if breached, may bring in one more correction going forward. Stay tuned, stay stock-specific! Subscribers can send their feedback and queries on technicals portfolio guide to email@example.com