Expect Markets To Rally In Medium Term

We started the fortnight with positive news emanating from most of the quarters in the government—the basket of positive news even comprised of Gross Domestic Product being pegged at 7.6%. Global markets performed positive on the US FED reserves chairperson Janet Yellen’s comment to kill off every possibility of rate hike in June. In Asia, stock indices - Nikkei rose by 1.57 per cent, Hang Seng rallied by 7.20 per cent and Shanghai surged by 3.56 per cent in last fifteen days. Meanwhile, Germany’s DAX and France’s CAC gained over a 2.98 per cent and 1 per cent during last week of May and first week of June.

Back at home, on Tuesday, June 7, RBI maintained status quo and kept repo rate (6.5 percent) and CRR (4 per cent) unchanged as Governor Raghuram Rajan expressed concerns over rising inflation data. Though expectations centred around rate cut in future if monsoon and inflation numbers are met eventually.

Indian indices rallied to 7 months’ high on June 7. Since third week of May, SENSEX surged by 6.73 per cent to 27000 from 25305 level. Nifty also rose by 6.68 per cent. Every sector has brought in average gain of 5 per cent during the period under consideration. Bankex, metal, auto, realty, FMCG and IT sectors gained by 9.80 per cent, 9.65 per cent, 8.42 per cent, 6.82 per cent, 5.12 per cent and 5.16 per cent respectively.

Among all the sectors, the banking sector has given highest performance during end of May and initial week of June. The government’s stand to clean up PSU banks’ balance sheet was welcomed by the markets. At sectoral front, Bankex hits 7 months high of 20536. Among banking sector stocks, State Bank of India has given highest returns by 24.8 per cent backed by merger news. The story is followed by Dhanlaxmi Bank and ICICI bank with double digit returns of 22.10 per cent and 14.89 per cent. Nine banks have given double digit returns since last week of May though their NPA slates still look clumsy.

During the said period, FII’s net investment in equity markets rose to Rs 3939 crores which is higher in comparison to first fortnight of May. DII’s net investment has seen at 616.21 crore which gaining pace after profit booking session. Recently rupee also hit three weeks high of 66.77 per dollar on sustained selling of dollars by banks and exporters amid recovery in domestic equities. Oil prices started marching higher since early April that accelerated this week on tightening supply picture, Canadian wildfires and attacks on Nigerian oil production units.

With monsoon around the corner and stage set for more action, we see further positive moment in market. The IMD forecast of high probability of excess rains will push Indian Economic growth and aid to lower further interest rate as it will help to subsidise consumer inflation. We believe in the medium term, the markets will continue to rally with structural reforms in place and buoyant investor sentiment.