UP Election Results May Impact Equity Markets’ Movement

Indian market continued its bull run from the lows touched in late December 2016 post the cacophony surrounding the negative impact of demonetisation on the country’s economy. The benchmark indices have delivered close to 14 per cent in returns in the past two months.

The stupendous rally has been aptly justified by the just released Q3 GDP numbers which came in at 7 per cent, which was higher than the estimates of economists and market participants. Indian market has also been supported by strong global equity markets which have on a continuous basis hit new highs on the back of strong global cues and economic data. 

Indian benchmark indices continued their strong upside momentum as both Sensex and Nifty generated returns of 1.43 and 1 per cent, respectively, despite market consolidating at higher levels. Equity markets came close to kissing distance of touching their all-time highs. In the previous months, the mid-caps and small-caps outperformed the broader market indices as they delivered returns in excess of 1.8 per cent. On the sectoral front, metals, IT and realty were the biggest gainers for the period under review as they gave returns of 2.34, 2.07 and 1.55 per cent, respectively. On the losing side, auto, power and FMCG stocks lost ground as they corrected by one percentage point. Looking at the fund flow movement, FIIs and DIIs swapped places as FIIs became net buyers in the Indian equities for the period as they pumped in close to Rs 7259 crore, as against DIIs pulling out Rs 1440 crore from the domestic markets. 

Strong rally has also been testimony to the fact that Indian markets are back on the global investors’ radars which has reflected in the inflow numbers. Global markets too strengthened further, primarily led by the US equity markets which are on one of the best bull run ever since the change of guard in Washington DC. Dow Jones and S&P 500 delivered returns of close to 2 per cent.

Other global markets also remained upbeat during the past two weeks. Asian markets were also high in spirits post factories data for the month of February showed improvement in key markets like China and Japan. Among commodities, crude continued to hover between the narrow range of USD 50-55 per barrel. In domestic economic data, Q3 GDP data surprised on the upside as it came in at 7 per cent which defied expectations thereby making India the fastest growing major economy in the world ahead of China.

Eight core industries grew by 3.4 per cent in the month of January. Manufacturing PMI rose to 50.7 in February from 50.4 in January, indicating of things getting back to normalcy post the negative impact of demonetisation.Auto sales numbers for the month of February also came in more-or-less in line with expectations. In one of the big developments, government made its intention clear of implementing GST, the landmark taxation reform, from July 1, 2017. 

Going ahead, all the eyes would be on the outcome of assembly polls especially that of Uttar Pradesh which will be a referendum of sorts on the NDA government and its economic policies. Among global events, FOMC meet in mid-March will be keenly watched alongside key economic data emanating out of major global economies.