Monsoon hope

May 23, 2016, 08:57 IST | Alex K Mathews

A number of global factors caused drops in stocks; progress of the rains can change that trend

Last Friday, the Nifty closed below its 200 DMA at 7802 and at 7749.70. Many of the front line stocks have already started trading below their respective moving averages indicating a weak outlook to persist ahead of the F&O expiry on May 26.

Japanese Finance Minister Taro Aso (c), Governor of the Bank of Japan Haruhiko Kuroda (r) and Vice Finance Minister Masatsugu Asakawa (l) answer questions after the G7 Finance Ministers and Central Bank Governors’ Meeting on Friday. Pic/AFP
Japanese Finance Minister Taro Aso (c), Governor of the Bank of Japan Haruhiko Kuroda (r) and Vice Finance Minister Masatsugu Asakawa (l) answer questions after the G7 Finance Ministers and Central Bank Governors’ Meeting on Friday. Pic/AFP

Global markets dropped because of fear of rate hikes in the US in June. Commodity markets were also hit badly due to the US dollar which was strong. Key indices fell on three out of five trading sessions in the last week. Higher interest rates can drain liquidity from emerging markets including India. Nifty has strong support at 7700 and 7680 levels. Expectation of a good monsoon can lift the market sentiments. Nifty has resistance at 7802 and 7890. Weak rupee can give support to IT companies in the short term.

Markets may open with a positive bias this week due to firm closing in the US. A strong recovery is on the cards due to short covering ahead of the F&O expiry. Both India VIX and S&P 500 VIX declined on Friday indicating lower volatility in the days to come.

This week will be a crucial one because of F&O expiry and quarterly earnings of Nifty giants like BPCL, Gail, Tata Steel, SBI, Bajaj Auto, Cipla, Coal India and Tata Power. Apart from these domestic cues, market participants are also closely watching the UK move on BREXIT, the proposed referendum will be tabled today

As expected the Japanese Yen weakened further and it may even continue to fall against the dollar, having support at 110.55 and 112 in the short term. Resistance for the Japanese Yen will be at 108.75 against the dollar, a weak Yen may support global markets. Though the dollar was strong, crude rallied well due to a wild fire in Canada, rebel attacks on main pipelines in Nigeria and Libya. Crude may continue its upward journey if these situations persists for some more time. Crude is likely to test $ 50 per barrel in the near term.

GST hope
Market participants are closely monitoring the government’s plans to table the GST Bill in the Monsoon session of Parliament after getting majority seats in Assam and with support from Mamata Banerjee, who is expected to support the GST with certain conditions.

Last weak, PSU banking stocks were hit very badly due to higher NPA and weak market sentiments. SBI is coming out with its numbers on May 26, which will give direction to the PSU Banks. SBI is seeking in principle for the Government of India to enter into negotiation with its five subsidiary banks.

Proposal of merging SBI and its five associate banks will be watched cautiously by the investor fraternity. Banking Nifty has support at 16226 and it has resistance at 16634 and 16902. Lower level support can be expected from Banking Nifty due to overselling.

SEBI has taken various measures to tighten the regulations for issuers and subscribers of offshore derivatives instruments or participatory notes to bring more transparency. In order to bring about uniformity in the Know-Your Client (KYC) and anti-laundering norms, it has been decided that Indian KYC norms will now be applicable to all ODI issuers. The new norms, while ensuring more transparency will also gradually make the product irrelevant and less attractive.

Stock story
Pidilite Industries closed positively on a good set of numbers on Friday; its consolidated net profit rose 89.24 per cent in the March quarter. Its standalone net profit rose 48.98 per cent.

ITC stock was in good demand after it announced 1:2 bonus shares on Friday, while IDBI disappointed the market participants, its Q4 net loss rose to 1736 crores as bad loan doubles.

The global macro economic data which will give further direction to the markets are Manufacturing PMI, Inflation from Japan, US continuing jobless claim, service PMI, Consumer confidence, US GDP growth rate Q-Q and existing home sales data from the US, unemployment rate, balance of trade, manufacturing PMI, service PMI, GDP Growth rate, unemployment rate and consumer confidence data from the Euro zone and the F&O expiry from India.

This week will see a lot of mid cap companies coming out with numbers, i.e Aban, Chennai Petro, CUB, Dish Tv, Eng India, Heritage Foods, Sonata Software, Bajaj Finserve, TTK PRestige, J&K Bank, GMDC, NCC, GSFC, Page Industries, MOIL, CONCOR, Tata Global, Jet Air, KRBL, WABAG, HEG, IOC, HPCL, etc.

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