Markets Expected To Remain On Tenterhooks In H2FY18
Robust, interim macroeconomic numbers have belied the long run decline forecasted in GDP at 6.2% from 7.3% in FY18. Further, optimism was driven by global markets hitting multi-year peaks ahead of a dovish stance by Federal Reserve on interest rates. The upcoming CPI inflation is forecasted at 3.45% YoY as against 3.36% in the previous month despite some relaxation in food prices. However, fuel price hike and increase in core inflation may keep the rate maintained for September 2017. Apart from food and fuel, the inflation number could hit 5% driven by rise in housing inflation. Likewise, WPI inflation number would report marginal decline from 3.2% in August to 3.1%. However, IIP is expected at 3.5% YoY, i.e. an increase of 1.2% from August month. With the overall high inflation forecast, monetary easing by the RBI to create liquidity would be limited to 25 bps cut in the coming policy review.
Recently, Indian benchmark indices greeted corporate earnings with open arms, the earnings season being kicked off by TCS and IndusInd Bank. Expected positive results buoyed market sentiments, otherwise markets were headed for profit-booking. As it is, overall corporate earnings for July-September are expected to post recovery, with better-than-previous-year’s results after a decline in the previous quarter. The recovery would be led by diminishing impact of cash ban and GST roll-out. For instance, PAT for Nifty companies is expected to report nearly 12.8% growth as against a per cent fall in the previous quarter. Moreover, operating profits and revenues are expected to post 11.5% and 6.5% growth, respectively, as compared to the previous year. The second half of the year is set to post improvement in growth, with businesses getting well-acquainted with the GST rules. However, unsatisfactory results may create uncertainty in the markets, for now.
Overall, markets would remain volatile amid earnings reports, followed by corporate announcements by companies comprising the benchmark and broader indices. Markets have had a great movement since January 2017 after year 2014. The stocks are seen rising, but the economy has seen a slowdown since mid2016. Now, with premium valuations and heightening geopolitical tensions, FIIs are consistently pulling out money from Indian markets. The YTD net investments of the FIIs have declined to Rs 32701 crore, while DIIs have been pouring money, with their YTD net investments rising to Rs 67,000 crore.
The bigger picture depicts a halt to the continuous rally in the markets post demonetisation but the sentiments still remain positive. Since August, markets have seen consolidation rather than correction. Correction in the form of profit-booking is yet to come and Nifty, as the representative index, may also witness the 9300 level post the 9600-mark. Not just the global events but, going forward, domestic events like December earnings followed by the Union budget and expected preponement of state and national elections would keep the markets on tenterhooks for the remaining part of FY18. Subscribers can send their feedback and queries on technicals portfolio guide to firstname.lastname@example.org