Monsoon worries hold back highs

Some cues give reason for cheer but sporadic rain continues to play bane

Better economic data supported the markets to such an extent, that it fuelled a rate cut by the Indian central bank. Also, mixed global cues played their part in market movements.

Yet, it was the concern about the monsoon that kept the markets away from more highs. Nifty may remain subdued this week with resistance at 8150 and support at 7605. Investors can buy 7800 Nifty put options and sell 8200 call options together.

The retail inflation for August fell for a second straight month. It has heightened the possibility for an interest rate cut as the RBI said that retail inflation will fall to about 4 per cent by August. Consumer price inflation stood at 3.66 per cent as compared to 3.78 per cent in July. Food inflation fell to 2.20 per cent from 2.15 per cent.

CPI based inflation data was at 7 per cent a year ago, when core CPI was at 6 per cent and food inflation at 8.6 per cent. Rural inflation for August was at 4.47 per cent against July’s 4.44 per cent. Urban inflation was at 2.67 per cent against 2.94 per cent on a monthly basis.

Industrial production data posted strong gains in July on the back of gains in capital goods and manufacturing sector. IIP data stood at 4.2 per cent compared to a revised figure of 4.4 per cent in June 2015, but data remained well above estimates.

The manufacturing sector which constitutes over 75 per cent of the index, posted a 4.7 per cent growth in July whereas capital goods production and consumer durables were up 10.6 per cent and 11.4 per cent respectively. Mining output rose 1.3 per cent.

Electricity generation growth was only 3.5 per cent. Power generation growth slowed to 3.5 per cent in July. Fall in the crude oil prices and improved exports in services has reduced the first quarter current account deficit (CAD) to $ 6.2 billion or 1.2 per cent of the GDP for the first quarter from $7.8 billion in the same period last year.

But CAD was higher as compared to $1.3 billion (0.2 per cent) in the previous quarter (Q4) of 2014-15. Fall in crude oil prices has made petroleum, oil and lubricants drop to $24 billion from $40 billion. A reduction in CAD is positive for the exchange rate as it points to a lower demand for the dollar.

According to an Organization for Economic Cooperation and Development report, India is an ‘exception’ to the dark picture in major emerging economies. India is expected to grow 7.2 per cent in 2015 and 7.3 per cent in 2016. This remained below its previous projection of 7.3 per cent (2015-16) and 7.4 per cent (2016-17).

China is expected to grow by 6.7 per cent and 6.5 per cent next year. Global growth forecast has been trimmed to 3 per cent this year from an earlier projection of 3.1 per cent. The major trigger for the economic market was the US central bank’s policy meet. In its monetary policy, the Federal Reserve kept its interest rates unchanged.

The US central bank said that the global risks and other factors had made it delay its interest rate hike. It kept open the possibility of a policy tightening later in the year. The Bank of Japan maintained their policy of buying assets at a pace of 80 trillion yen ($668 billion) a year.

Gold recovered from lower levels after the Fed decision to keep the interest rates unchanged. It is likely to test $1151 and support at $1117 per Troy ounce. Consumer confidence data, markit manufacturing PMI flash markit services PMI flash and composite PMI will be in focus for the Euro zone area.

The Japanese front sees inflation, core inflation and manufacturing PMI in focus. The major trigger for the Chinese markets will be manufacturing PMI flash.

Alex K Mathews is the author of Financial Services And Systems, as well as Option Trading: Bear Market Strategies published by Tata McGraw Hill. He is also the technical and derivatives research head of Geojit BNP Paribas Financial Services Ltd.

The author may have a vested interest in investments he has recommended. Email him at Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

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