Strong Trig­gers Ahead Hold Prom­ise For The Mar­kets

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Fi­nally, In­dian stock mar­ket bulls slipped on the oil slick as oil prices rose and bears took over the charge The talk of the town were the crude oil prices that rose as a pos­i­tive out­come of OPEC’s strug­gle to re­store bal­ance in the oil mar­ket through pro­duc­tion cuts. Fur­ther, hur­ri­canes in the US, the third largest pro­ducer of oil, have led to a de­cline in op­er­a­tional rigs. Brent crude hit USD 62 per bar­rel and has wit­nessed back­war­da­tion, i.e. the phase in which the spot price is higher than the fu­ture con­tract price. Oil an­a­lysts ex­pect prices to breach USD 70 level or even USD 100 level in the com­ing ses­sions with ex­pected rise in de­mand amid back­war­da­tion.

Com­ing back to In­dia, In­dian eq­ui­ties wit­nessed a sharp correction dur­ing the cur­rent week, which is a con­sol­i­da­tion break­down in the bench­mark and broader in­dices amid profit-book­ing. The cat­a­lyst for this correction be­ing the threat of ris­ing oil prices, which is ex­pected to dampen ex­pec­ta­tions of lower fis­cal deficit and prospects of com­pa­nies that use oil as their ba­sic raw ma­te­rial.

So far, mar­kets had re­mained buoy­ant, or rather, mar­kets were re­frained from go­ing into correction mode, de­spite sub­dued macroe­co­nomic num­bers and mixed cor­po­rate earn­ings. The rea­son be­ing pos­i­tive global mar­kets, and specif­i­cally the US mar­kets amid Fed­eral Re­serve's tight-lipped stance and jus­ti­fi­able jobs data. Also, in the series of events came the China trade data, wherein trade sur­plus with the US de­clined to USD 26.62 bn in Oc­to­ber as against USD 28.08 bn in Septem­ber. China's oil im­ports de­clined just to 7.3 mn bpd as against 9 mn bpd in Septem­ber. How­ever, world’s big­gest com­mod­ity im­porter’s over­all im­ports grew 17.2%, while exports grew at 6.9%. This news came in as a pos­i­tive for the In­dian min­ing and metal sec­tors and the op­ti­mism would re­main for a while.

It is a de­mon­eti­sa­tion an­niver­sary week which might have taken in­vestors into a tragic flash­back. Jokes apart, but the re­cov­ery from the de­mon­eti­sa­tion that be­gan on November 8, 2016 has been re­mark­able in many stocks, with al­most 46 stocks hav­ing more than dou­bled since de­mon­eti­sa­tion. The BSE 500 in­dex gained al­most 24%, with min­i­mum 344 stocks surg­ing more than 25%, smartly out­pac­ing the bench­mark Sensex by al­most 22%. So, the cur­rent fall may be profit-book­ing by these pro­longed stake­hold­ers and some more correction would be wel­comed by the mar­ket par­tic­i­pants be­fore en­ter­ing for fresh buy­ing.

The FIIs and DIIs to­gether have poured in money to record lev­els in 2017, so much so that the mar­ket val­u­a­tions have out­paced other emerg­ing mar­kets in Asia. That again does not mean that the mar­kets are trad­ing at pre­mium. There is still some head­room left to grow, but some correction, or rather even a down­fall, would be healthy for in­vestors to en­ter at a rea­son­ably lower pre­mium, though not at a dis­count. Bet­ter cor­po­rate earn­ings in the sec­ond half of the cur­rent fis­cal, RBI's pos­si­ble in­ter­est rate cut in De­cem­ber and the start of next fi­nan­cial year along with ex­pected pre­pone­ment of elec­tions would be the next driv­ers of the mar­ket. Stay tuned, stay in­vested in the up­stream till then.

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