Strong Triggers Ahead Hold Promise For The Markets
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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