Good Monsoon Pegged With GST Keeping Markets High And Happening
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Sensex remains buoyant at the levels of 28K and the earnings season is keeping the street active. Mid cap and small cap rose by 5.27 and 3.46 per cent. Auto, metal, power, realty and IT sectors have been up in the range of 2.46 per cent to 3.07 per cent. The Indian rupee on Monday, August 1,
2016 got strengthened against dollar for fifth consecutive session due to continuous buying by FIIs in Indian markets. In last 15 days, net buys by FIIs stands at Rs 7571 crore. The momentum will remain sustained with much anticipated process for GST kicking off finally on August 3 and we remain optimistic that this tax reform-GST will turn India into one economic entity. More liquidity infusion is expected in August with over one crore government employees set to get arrears arising from implementation of 7th Pay Commission recommendations in one go in their August salaries. The twin impact of this should boost demand for consumer goods, automobiles, realty etc sectors in 2HFY17.
IPO session continues to make news at streets and attract investors' interests. Bumper entry by Advanced Enzyme, which listed at Rs 1210 a piece, rose more than 35 per cent over issue price of Rs 896. While L&T Infotech is down by 3.42 per cent over issue price. On the other side EPC player- Dilip Buildcon perked up the market with its subscription from August 1- 3 2016. 2HFY17 is going to be feast for investors as many companies like L&T Technology Services, ICICI Prudential Life Insurance, PNB Housing Finance, Green Signal Bio Pharma etc recently filed prospectus in SEBI.
Positive news emanating from strong domestic car and two-wheeler sales in July are setting stage in the first week of August 2016. As on August 1st 2016, Maruti Suzuki announced its sales numbers for the month of July. The company has sold 1.37 lakh vehicles, higher by 12.7 per cent in July. The growth is led by domestic business. Growth in production and new orders continue to strengthen in July and giving faster pace to factory activity, in the beginning of second half of FY17. Consumer Inflation data, tailwinds of monsoon over India will decide the RBI’s move in upcoming Monetary Policy. On the policy front, the Steel Ministry is currently seeking extension on minimum import price (MIP), post August 2016. MIP, is a measure to restrict cheap imports and protect domestic industry. Extension of MIP will benefit steel production companies like SAIL, TATA Steel, JSW Steel etc.
IMD announced that monsoon is expected to be normal vs. above normal as expected before. The country has seen revived activity in sowing and more area is being reported to have sowed paddy, oil seeds and maize. This fans positive news for chemical and agriculture segment. This should also help to tame inflation eventually.
On global front, Federal Reserve left interest rate unchanged and Bank of Japan disappointed investors by announcing a much smaller stimulus plan than expected. Rather it doubled purchase of exchange traded fund. On this news, Hang Seng Index opened lower on July 28, 2016. In last fortnight, NASDAQ, CAC 40 and DAX performed well with rise of 2.50, 2.53 and 3.57 per cent respectively.
We are in the mid of earnings season. The earnings have been mixed with auto, FMCG and consumer durable reporting strong numbers while cement and chemical sectors have reported mixed numbers. Also, shift to Indian Accounting Standards (IAS) is making it difficult to compare apples with . We believe the shift to IAS and positive impact of monsoon will be more evident in Q2. We continue to believe that fundamentals remain strong with key levers being GST and normal monsoon finally leading to renewed economic activity.