Hopes of rate cut, monsoon and disinvestment to drive markets

Mumbai, May 31: Hopes of a policy rate cut by the apex bank coupled with encouraging news on monsoon progression might cheer the markets during the week starting from June 1. Lately, the Indian equities markets have been subdued due to disappointing weaker-than-expected quarterly results, Greece’s pay-out crises, crude oil price rally and currency fluctuations. “The markets are going to be volatile for the first few days. Greece’s paying its dues to the IMF (Intertiol Monetary Fund) is the major global event, this week. It will have the markets world over on their heels,” Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.

“Crude oil and other commodity prices too can play a major spoiler, if their upward progression continues. Currency fluctuation and dollar strengthening vis-a-vis rupee is another cause for concern during this period,” Nevgi elaborated. But, the one major factor that can make or break the momentum of the markets will be the Reserve Bank of India’s (RBI) decision on a policy rate cut. The RBI will conduct it bi-monthly monetary policy review on June 2, 2015.

“The mood and expectations right now is of a 25 basis points cut. But the markets will rally if there is a 50 basis points cut,” Nevgi pointed.

The markets are hopeful that the better-than-expected retail and wholesale price data will prompt the apex bank to cut rates and kick-start the consumer cycle in the country. The retail inflation eased nearly 40 basis points to 4.87 percent in April, official data showed.

The annual rate of wholesale price inflation (WPI) decelerated further to its lowest in the last six months at (-)2.65 percent for April from (-)2.33 percent for the month before.

However, industrial recovery hopes have been belied with the rowth in India’s factory output slowing to 2.1 percent in March. “A 25 or 50 basis points cut will stabilisethe markets after the initial downtrend that is expected to take place due to the Greece crises,” Nevgi said.

Alysts said that the rate cut will lead the foreign investors back into India, as it will be one amongst a few growing countries that still have the potential of a rate cut. The outlook and language used by the governor will also be very important to see the traction of RBI’s strategy vis-a-vis US Fed moves on rate hike.

“Any statement by the RBI governor has the power to either boost the markets or sink them,” Nevgi jibed. The RBI is cautious about the US Fed’s stand that the rate hike might take place in the latter part of the year. With higher interest rates in the US, the foreign portfolio investors (FPIs) are expected to be led away from the emerging markets such as India.

Dipen Shah, head of private client group research with Kotak Securities, predicted high levels of volatility in the markets, due to so many local and global factors which will impact investor sentiments.

“Many investors will be on the sideways during the next week. Short perspective wise, we can expect high levels of sector specific sell-outs in the week ahead, especially with those sectors whose major company’s results are expected,” Shah told IANS. “After the major results and the policy review, the markets will focus mainly on the intertiol cues and commodity price rise if any. Government moves on reforms and investments will also be looked at closely,” Shah added.

According to Alex Mathews, head-research with Geojit BNP Paribas Fincial Services, the US-based data such as monthly services PMI (purchasing magers index), non-farm jobs data and housing sales figures will also be the key drivers for the markets. “Domestically, the vehicle sales numbers are on Monday, followed by other major figures for May. Plus Friday’s gross domestic product (GDP) data at 7.3 percent growth will also add in positive cues for the markets,” Mathews said. Mathews added that many domestic investors are waiting for the government to off-load stake in Indian Oil and NTPC.

“Domestic investors will be interested more in the markets, now because of the cheap valuations and the upcoming stake sales by the government in Indian Oil and NTPC,” Mathews told IANS. With the RBI rate cut, quarterly results, crude oil and intertiol volatility factored-in by the market, alysts fell that the markets will literally be looking at the sky to known the next major movement cue.

“Monsoon predictions right now is of less-than-average rainfall. This is a bad news, but if this prediction deteriorates further, than we can see a gradual build-up of pressure in the markets in the coming 2 weeks,” said Gaurav Jain, director with Hem Securities.

“Monsoon holds promises right now as all other major cues have been factored in. The monsoon performance will give a picture of either an increase or decrease in rural incomes. This will also tell us about the growth potential sectors like auto ancillary and fast moving consumer goods (FMCG) and the country’s GDP,” Jain told IANS. Last week, the barometer index S&P Bombay Stock Exchange (BSE) Sensex index fell 129.06 points, or 0.46 percent. At the tiol Stock Exchange (NSE), the broader 50-share Nifty settled lower by 25 points ot 0.3 percent. (IANS)