Results Season Will Drive The Markets Next Few Weeks

Indian market indicator Nifty50 seems to be enjoying a strong support at 7400 level despite of weakness in global markets. The NSE Nifty 50 though breached its strong support of 7550 and also breached 7350 during second week of January, the index seems to be not sustaining below 7400 level showing a considerable strength sustaining these levels. On January 18, domestic market did not show a good start for the week and the Nifty 50 index ended at 7351, down by 86 points; and Sensex closed 266 points lower at 24188. The Asian markets also closed in the red during the day specified.

However, on the next day, the market showed recovery and saw some value buying across the markets. This strength has also supported by the increased interest in Indian banks after the Reserve Bank of India (RBI) Governor Raghuram Rajan and two of his deputies met with banks and other financial institutions on January 19. The RBI officials discussed on stressed loans in the banking system. India's banks are struggling with more than USD 110 billion (Rs 7432.7 billion) of troubled debt. Owing to the meet of the RBI Governor Raghuram Rajan and leading bank officials, bank Nifty witnessed a hike by 1.9 per cent on that day. Most of the private sector banks such as Axis Bank, HDFC Bank, Yes Bank, ICICI Bank, IDBI Bank showed handsome recovery on that day.

Meanwhile, banks are facing issues with higher NPAs, the corporates are facing similar with pledging of shares at present. According to a Prime Database report, pledging of shares by promoters in NSE-listed companies has hit a 7-year high in the quarter ending December 2015. Promoter share pledging saw an increase of 14 per cent in the last quarter of calendar year 2015, with the value of pledged shares going up to Rs 2.03 lakh crore as on December 31, 2015, compared to 1.78 lakh crore as on September 30, 2015. As on December 31, 2015, there were pledged shares in as many as 517 of the 1506 NSE-listed companies, up from 370 companies 6 years ago. Over the period of last six years, the percentage of total promoter holding pledged went up from 27 per cent to 46 per cent.

Further, the economic data declared were Index of Industrial Output (IIP) and Consumer Price Index (CPI) numbers which came below expected. Industrial output for the month of November 2015 contracted by 3.2 per cent, recording lowest level for FY16. The CPI for the fifth consecutive month rose to a high of 5.61 per cent in December, from 5.41 per cent in November 2015 due to high food inflation. On positive front, the wholesale price index (WPI) remained in the negative territory for the 14th straight month, though the intensity of contraction eased. Further the December quarter result season has started with a mixed bag. There were no negative surprises till date; however quarter results are expected to show marginal improvement during current quarter. Hence we expect the result season to drive the market over next one month.