Mar­kets May Re­main Range­bound But With Strong Un­der­tone

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Af­ter tak­ing sup­ports at cru­cial lev­els on the day of Septem­ber F&O ex­piry, In­dian bench­mark in­dices at­tempted a bounce back driven by pos­i­tive macroe­co­nomic data. Oc­to­ber 2017 started off with strong auto sales data which was a pos­i­tive for auto stocks de­spite cor­rec­tive sen­ti­ments pre­vail­ing in the mar­kets. With model launches and fes­ti­val sea­son right around the cor­ner, auto num­bers wit­nessed an up­swing, thereby boost­ing FY18 fore­casts. Septem­ber 2017 sales have in­creased off­set­ting rise in cess, price rise on pre­mium ve­hi­cles, fuel price hike and eco­nomic weak­ness. To add to it, the re-stock­ing post GST roll-out also helped higher despatches. An­other buoy­ant event was the core sec­tor growth that hit its five-month high lev­els with 4.9% rise in Au­gust 2017 as against 2.6% in July and 3.1% in cor­re­spond­ing month of the pre­vi­ous year. Go­ing for­ward IIP data is ex­pected to ex­pand from 1.2% in July to 2-3% as IIP holds nearly 40% of the core sec­tor. Man­u­fac­tur­ing ac­tiv­ity too grew for the sec­ond straight month in Septem­ber, driven by higher out­put and new or­ders. PMI came in at 51.2, equat­ing Au­gust num­ber, while ser­vices PMI posted a re­vival to 50.7 as against 47.5 in Au­gust, sup­ported by new or­ders af­ter as­suag­ing of GST ap­pre­hen­sions. As a re­sult, RBI main­tained sta­tus quo on in­ter­est rates in its re­cently held bi-monthly pol­icy. RBI main­tained repo rate and re­v­erse repo at 6% and 5.75%, re­spec­tively, ahead of sub­dued econ­omy and grow­ing in­fla­tion. RBI cut the growth fore­cast for FY18 to 6.7% from 7.3%. More­over, it fore­cast in­fla­tion at 4.2-4.6% in H2FY18.

Nev­er­the­less, DIIs have been tremen­dously pour­ing money and their net in­vest­ments stood at Rs 64,550.64 crore, coun­ter­bal­anc­ing the sell-offs by FIIs, thereby sta­bi­liz­ing the mar­kets. The FIIs' net in­vest­ment stood at Rs 35,688.92 crore in 2017. The sell­off by FIIs though is a re­sult of geopo­lit­i­cal ten­sions, but con­tin­ued sell-off would in­di­cate sub­dued Septem­ber cor­po­rate earn­ings and dol­lar ap­pre­ci­a­tion. Com­pa­nies have al­ready started post­ing their quar­terly re­sults and mar­kets would re­act to the front­line stocks earn­ings re­ports. The econ­omy has been grad­u­ally slow­ing since sec­ond half of 2016, yet mar­kets have been ris­ing con­sis­tently from Jan­uary 2017 with profit book­ing from Au­gust till date. At the P/E of 23-24, stock prices seem to be val­ued at pre­mium. Con­sid­er­ing the long term trend, mar­kets are range­bound and would con­tinue to re­main strong, un­less the lev­els of 31000 and 9685 are not breached on the Sen­sex and Nifty, re­spec­tively.

Even af­ter that, mar­kets would just en­ter the cor­rec­tion phase that would last up to 30,000 and 9,300 on Sen­sex and Nifty, repec­tively. We are still bullish on the mar­kets in the long run, un­less geopo­lit­i­cal ten­sions spook the mar­kets and worsen the sen­ti­ments, ex­treme cor­po­rate an­nounce­ments and fear of Modi gov­ern­ment get­ting de­feated in the up­com­ing na­tional elec­tions. As it is, the gov­ern­ment could pre­pone the elec­tions this time around and hold the state and na­tional elec­tions si­mul­ta­ne­ously in 2018.

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