After A Sprint, Expect Some consolidation

It seems that ‘Acche Din’ for Indian equities markets have already arrived. At least the way leading benchmark indices are moving only northwards since the consecutive eight sessions it seems so. Sensex registered its longest 8-day rally in the last almost two-years to close a record high on expectation of domestic recovery and strong buying from overseas investors. Yesterday, the BSE Sensex surged 125 points to close at 26,272, rallied 1,265 points in the past eight trading days between July 15 and July 24. The National Stock Exchange (NSE) S&P CNX Nifty closed at 7,831 has surged 376 points during the period. Both the indices close at their respective lifetime highs.

We have been consistently stating that reforms process initiated by Government has really helped the sentiments on the street. The new government is taking serious efforts to stabilize the economy. Further, markets were also led by improvement in global economy with better economic numbers. It was no wonder that the foreign institutional investors (FIIs) have been flocking to Indian markets and were net buyers to the tune of Rs 5,000 crore in past six trading sessions till yesterday.

Apart from above mentioned factors, strong financial performance of India Inc for June 2014quarter is an added benefit. With the earnings downgrades thing of the past and earnings upgrades happening in majority of large cap companies, valuations still look fair despite a surge in past eight trading sessions.

While the Government is trying all means to ensure a smooth flowing of economy, now even rain god seems to have to come to its help. Monsoon Deficit which was as high as 46 per cent in previous month is now reduced to just 15 per cent on week ended July 16, 2014. We are of the opinion that, this would help the Government keep the inflation under check. With deficient rainfall vegetable and fruits prices had witnessed and significant up-move, but as the rain fall is soon catching up with long time average levels we feel it may result in some rationalisation of prices.  

Another factor is IMF Actually kept the Indian FY15 GDP growth expectations unchanged while it lowered growth rate expectations for many developed countries on account of geo-political concerns. We feel it is a positive factor for Indian equities. As of today, the response to Finance Bill would be the factors to be focused at.

While the macro data on domestic front has been good, the global macro data has also arrived on a positive note. Like inflation data from US and services and manufacturing PMI for leading economies has been better than the street estimates. Euro Zone PMI index rose to 54 in July from 52.8 in June.  With stable global markets data, we feel the FIIs are likely to flock money in to Indian equities.

As for the global markets, The Standard & Poor’s 500 Index extended a record as Facebook Inc rallied on higher revenue, and growth in global manufacturing offset a drop in home sales. The S&P 500 added 0.1 % to close at 1987.98. The Dow average slipped 2.83 points, (0.1%), to 17,083.80.

As for Asian equities, the scenario seems to be positive with Nikkei trading with gains of 0.60% or 87 points. Hang Seng and Shanghai Composite are trading with marginal gains.SGX Nifty however is trading in red with marginal decline of 6 points.

It seems that after consistent upward movement for consecutive eight sessions markets are likely to witness some amount of profit booking. Hence consolidation would be a buzzword. Expect Indices to open on a flattish note and then remain highly range bound in early hours of trade.