Market May Remain Range-Bound As Testing Times Loom Ahead

February started off with the exuberance from a positive Union budget, but plunged into the sorrow of the casualties in the Pulwama attack, followed by the uncertainty about India’s response to the attack. In an apt sign-off to a busy month ahead of the general elections, Indian Air Force jets reportedly bombed terrorist camps in Pakistan-occupied Kashmir. In the midst of this emotionally charged environment, Indian benchmark indices lost their steam even while their global peers partied. 

The benchmark indices BSE Sensex and Nifty50 lost 1.85 per cent and 1.39 per cent, respectively, during the fortnight. The other broader indices followed suit and the BSE Mid-cap and BSE Small-cap lost 1.11 per cent and 1.02 per cent, respectively. This damage to the broader indices can be attributed to the correction seen in the valuation of stocks that reported weak to lacklustre results for Q3FY19. 

The earnings season also showed its impact across sectors. The sectors which saw selling pressure were IT, FMCG, auto and banking. The BSE IT, BSE FMCG, BSE Auto and Bankex indices were down by 3.29 per cent, 2.05 per cent, 1.77 per cent and 1.49 per cent, respectively, while the BSE Metal index appreciated the most and was up by 3.93 per cent, followed BSE Realty and Power indices which rose by 2.78 per cent and 1.82 per cent during the fortnight. These sectors were aided by the positive policy changes made by the central government. The metal and power stocks benefited from the government’s decision to allow captive coal mine owners to sell 25 per cent of their output in the open market for end purposes other than fuel, thereby making these mines attractive for bidders from the cement and steel industry. For the realty sector, the GST Council cut GST rates applicable on under-construction houses and affordable housing segment from the existing 12 per cent and 8 per cent to 5 per cent and 1 per cent, respectively. 

The trading data for the fortnight showed that FIIs were in a flight mode ahead of the general elections. FIIs were net sellers to the tune of Rs. 2835.55 crore, while DIIs were net buyers with an inflow of Rs. 4967.35 crore during the fortnight. 

Internationally, the global indices were upbeat during the fortnight with the US President Donald Trump giving hints of a possible breakthrough in the US-China trade talks. During the fortnight, all three major US indices, Dow Jones Industrial, S&P 500 and the tech index Nasdaq were up more than 3 per cent. The European indices reacted mixed to the diffusion in trade tension between the two major economies. The French CAC 40 was up 5.12 per cent, German DAX was up 5.05 per cent and UK’s FTSE 100 was up 1.52 per cent. Asian markets cheered the delay in trade sanctions and the Shanghai Composite promptly rose by 6.22 per cent, followed by Japan’s Nikkei which was up 5.37 per cent and Hing Kong’s Hang Seng was up 3.11 per cent during the fortnight. 

Trump’s tweets this week served as a balm to the ailing global economy. He tweeted that his country and China have made substantial progress in trade talks and that he will be delaying the increase in US tariffs. He also confirmed plans to meet China’s President Xi Jinping. With Trump also warning OPEC against hiking crude prices, Brent crude futures dipped to trade at US$64 per barrel at the end of the fortnight. 

With India’s ongoing retaliatory campaign against terrorism, the markets might be heading into testing times and are expected to remain range-bound in the near term