Bullish after Brexit?

Jul 04, 2016, 10:32 IST | Alex K Mathews

A smart recovery and a recent surge indicates that there are good times ahead. Add to that, a promising monsoon and you have reasons to smile

After heavy sell-offs last week due to Brexit, markets recovered smartly and on Friday, closed at 8328. The recent surge is an early indication of a bull market if there is no negative news from the European Union (EU) zone. Nifty has immediate resistance at 8375 and 8402. Most probably, minor profit booking and consolidation can be expected before the said extended move. Nifty has support at 8195 and 8125 levels.

London: ‘Remain’ supporters near Park Lane in London, before marching to Parliament Square to show their support for the European Union. Pic/AP/PTI
London: ‘Remain’ supporters near Park Lane in London, before marching to Parliament Square to show their support for the European Union. Pic/AP/PTI

The Central government has agreed to the 7th pay commission recommendations, nearly 47 lakh central government employees and 52 lakh pensioners will get benefits. The commission also suggested R 18,000 as the minimum salary. The new recommendations will put an additional financial burden on the government to the tune of R 1,02,000 crore. The policy will give a boost to auto, consumer goods, real estate and even FMCG. Higher spending will revive economic growth. This recent decision will have a long lasting, positive impact on the Indian economy. Investors are also confident that the government will get a majority for passing the GST in the Parliament during the monsoon session.

Confident picture
A good monsoon across the country also gives a lot of confidence to investors. Short covering ahead of the June Futures and Option expiry, also supported the markets. The latest roll-over Nifty data indicates a strong market outlook for the July series. The July Nifty roll-over was higher than that of the previous three months, average of 70 per cent and it was at 78 per cent. Most of the large cap stocks futures roll-over figures also suggested the same trend. FIIs also created fresh positions after the Brexit sell-off. S&P 500 VIX which measures the US market conditions has fallen towards 14.77 per cent, from the earlier 26 per cent. India VIX also retreated from higher levels and on Friday, it closed at 15.73 per cent, which indicates a strong market outlook in the near term.

Taking stock
Last week, Brexit took a toll on IT stocks, it is still in sell mode, whereas sugar and tea sector stocks made a comeback. Tea stocks were in good demand due to shortage of tea arrival and higher demand, the price of 1 kg of tea moved up by around 13 per cent, in the auction in the recent past. This price trend may continue. Sugar stocks have been in demand since the past three months, due to higher realisation because there is acute shortage of sugar exports from Brazil, and, drought in India. Fertilizer sector stocks are likely to move up, once the monsoon picks up in the northern regions.

Friday’s auto sale numbers were mixed. Maruti's domestic sales dropped by 10 per cent, M&M achieved 7 per cent growth, Escorts had a sales growth of 12 per cent and last, Ashok Leyland reported a sales growth of 7 per cent.

Gold sheen
Crude moved back towards $48 per barrel after testing $45.77, due to lower output from existing wells and reduced drilling, which in turn can lift sentiments positively. Crude has immediate resistance at $51.33 per barrel.

Gold is still looking very positive and many analysts revised their earlier estimates towards $ 1500, from $1400 per troy ounce. Last week, both gold and silver have risen substantially due to higher demand partly because of uncertainty over Brexit, and, currency volatility. If currency market volatility increases, then investors will park their money in safe havens like gold.

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