Profit Booking To Continue

After witnessing some sort of profit booking on Monday Indian equities remained closed yesterday on account of Eid Holiday. The reason for the slide was quite simple, ahead of the expiry on Thursday no one wanted to take the open positions home. As a result, on Monday the Sensex declined by 136 points to close at 25991 and Nifty closed at 7749 (down 41 points). Now today we feel equity indices are likely to remain volatile ahead of the expiry tomorrow and also on account of mixed signals from the global equity markets.

If we take a look at global equities, U.S. stocks fell as President Barack Obama announced new sanctions against Russia and warned its actions in Ukraine are “setting back decades of progress,” snuffing out earlier gains led by telephone stocks. As a result the Standard & Poor’s 500 Index slipped 0.5 percent to 1969.95. The Dow Jones Industrial Average lost 70.48 points, or 0.4 percent, to 16,912.11 after earlier in the day gaining as much as 74 points. About 6 billion shares changed hands on U.S. exchanges, up 5.3 percent from the three-month average. On the same experts suggested that “Geopolitical risk remains a risk. What ultimately makes stocks go higher is earning and earnings are supporting higher valuations in the market”. We feel even the FOMC meet today is likely to keep the investors on toes.

As for the Asian indices are Showing mixed signals. While Nikkei is trading in green with 0.27% gains even Hang Seng is also trading with significant gains of0.82%.  Shanghai Composite is trading in green with 0.35% gains. All other Asian indices however are in red with marginal cuts.

Now what to expect from Indian equities? We are of the opinion that the Indian equity indices are likely to witness decline. Factors behind the same would be disappointing results from L&T where the company announced results after market hours on Monday. Here the management has lowered the guidance for coming quarters and whole of FY15. With a big daddy of infrastructure saying so, we feel the indices are likely to witness some amount of a decline for sure. Most on the street are over enthusiastic about the results and with no major surprises on the positive side the up-move may get capped.

However there are few positive factors like improvement in rainfall and expectations about inflation declining in coming week. However we expect the factors like F&O expiry tomorrow, weak results by few companies and Last but not the least the re-emergence of geo-political risk to result in Indian equities open in negative zone. Profit booking is likely to continue.