Keep an Eye on PSU Banks
The past several weeks have been rough; the equity markets witnessed a lot of volatility being inflicted on them through highly structured and artificial behaviour which many a times defied technical levels. With the markets subjected to opening gaps, it kept little trading room for the traders and made their existence a bit difficult. However, the present week has seen some respite from such highly volatile behaviour. The markets have cooled off and have made some important technical developments which are important and may likely influence the trend over the immediate short-term.
The better part of the story is that the volatility reduced and the market put its short-term bottom in place. The week’s low of 17,043 can well be defined as a most immediate bottom being put in place unless violated. The Indian markets, though, underperformed the global peers over the last week. NIFTY gained just 0.30 per cent while NIFTY Bank and the broader index NIFTY 500 returned negative returns of 1.02 per cent and 0.79 per cent, respectively. Global markets outperformed; Nasdaq, Dow Jones Industrial Index and the S & P 500 returned 4.41 per cent, 1.87 per cent, and 2.45 per cent, respectively.
We can fairly say that the previous week belonged to the market’s final reaction to the Union Budget as it digested the proposals and got done and dusted with that. Today, it reacted positively to the RBI’s Monetary Policy where it kept the key rates unchanged. The markets were expecting the repo rates to stay unchanged, but there was an expectation of the RBI raising the reverse repo rate. The RBI kept this unchanged as well.
The likelihood of the reverse repo rate was seen as the difference between the repo and the reverse repo that has historically stayed near 30 basis points; presently, it stands much wider.
However, RBI kept it unchanged and broadly speaking, the policy was received positively by the markets. By far, we can say that the policy was much more dovish than expected, and it was very largely accommodative. This is in line with the stand that is maintained by RBI now since many months. It was largely a non-event policy with RBI clearly seen playing a waiting game with its continued and steadfast focus on the economic growth revival. As per the RBI, inflation was still a concern; though it remained in line with its estimates. The stock markets took the policy in a positive way and ended with gains. Over the coming week we will see the financials trying to outperform the frontline NIFTY.
We will see the PSU banks doing quite well and also expect the private banks and other financial services stocks to follow the suit. Apart from this, relatively strong performance can be expected from auto, oil and gas space, and pharmaceuticals and PSE stocks in the days ahead. The global trade setup also remains buoyant. The Federal Reserve is likely to come up with its first rate hike in March; as and when it happens some strength in the US Dollar index may return. However, the current weakness in the US dollar is fuelling the rally in the metal stocks. This phenomenon may continue for some time.
