<b>Devangshu Datta:</b> Indications of a long-term bullish trend

As expected, the RBI cut interest rates; in addition, it introduced measures to improve liquidity. CPI, IIP both beat consensus estimates. Predictions of a normal monsoon have boosted sentiment

The last fortnight saw several positive data points registered. There was a continuation of the equity rally. However, global growth remains weak and that could impact investment flows and retard gross domestic product growth (GDP) in India as well.

The Reserve Bank of India (RBI) cut rates and took other measures to improve liquidity in the banking system. The latest data pertaining to inflation and industrial production also provided positive surprises. Good monsoon forecasts led to improved sentiment. Infosys kicked off earnings season with strong projections.

RBI Governor Raghu ram Rajan has made it clear that he would not contemplate another rate cut until well into the monsoon. But the central bank has cut the policy repurchase rate by 150 basis points over the last 16 months and on April 5, it also introduced several measures to improve liquidity.

These included tightening the policy rate band. So, banks will pay less to borrow money from the RBI while the RBI will pay more if it borrows from banks. The RBI will also change the policy underpinning its open market operations to ensure money supply is a little higher. It has also eased daily Cash Reserve Ratio requirements. Taken together, these should encourage banks to cut commercial rates.

The March Consumer Price Index (CPI) showed 4.83 per cent change year-on-year (YoY) over March 2015, beating consensus estimates. Urban CPI is below four per cent. The Index of Industrial Production (IIP), which was negative between November 2015 and January 2016, moved above two per cent YoY in February 2016. The IIP beat consensus. Cumulative growth for April 2015 to February 2016 over the corresponding period of the previous fiscal is about 2.6 per cent. That is not much but it is healthy.

The RBI will be under pressure to cut rates again if the monsoon is good. Rain projections are positive at the moment. This has boosted sentiment considerably since it would mean a bounce in rural consumption after two drought years. Share prices of two-wheeler and tractor manufacturers, and of FMCG stocks, have risen on "super-normal" monsoon projections.

Anecdotally, there have also been several large deals in commercial real estate, with some of the existing oversupply in mall space being mopped up. However, start-up funding declined in the January to March 2016 quarter, which is a somewhat negative data point.

If there is a strong rural pick-up, it is possible, even probable, that GDP estimates for 2016-17 will be exceeded and in that case, tax revenues could be buoyant. However, some Budget estimates have come under a cloud. The telecom ministry, for example, estimates that it would generate about Rs 70,000 crore of revenues while the estimate in the Budget is for Rs 99,000 crore of telecom revenue. The disinvestment assumption of Rs 56,000 crore (including stake sales and asset strips) is also unlikely to be met, given the historic record. The 2015-16 disinvestment revenue was under Rs 24,000 crore, much less than the budgeted estimate of Rs 65,000 crore.

Another key Budget estimate involves oil and petro subsidies. Those have been calculated with India's crude basket estimated to cost just about $50 a barrel. Benchmark Brent crude is around $42 at the moment and the Indian basket is a little cheaper.

But oil exporters are looking to work out deals with each other to generate higher prices. There was a crucial meeting of the members of Organization of the Petroleum Exporting Countries and other oil exporters in Doha and the outcomes are unknown at the time of writing. Reportedly, Saudi Arabia and Russia have agreed to freeze production. If other oil exporters do cut production, the current situation of weak demand and oversupply could change. There may be major volatility in energy prices through the next couple of weeks if something comes out of Doha and supply is reduced.

Most analysts expect crude prices to continue to range close to current levels. But there are outlying estimates by respected analysts, including one projection of highs of $85 and another projection of lows of $20 by December. Big changes in crude prices could change India's fiscal deficit assumptions, either for the better or the worse.

Global demand is liable to continue to be weak. The latest International Monetary Fund update to the World Economic Outlook downgrades global GDP growth prospects to 3.2 per cent from the previous estimate of 3.4 per cent in January 2016. However, the latest data out of China is cheerful. The GDP target of 6.7 per cent growth in the January to March 2016 period was hit precisely, with the help of massive stimulus.

Foreign portfolio investors continued to be strong buyers through April. and they bought government of India treasuries as well after the rate cut. Domestic investors have sold into the rally. Earnings season has started well with Infosys beating projections and producing strong advices.

India's investors will be hoping against hope that the earnings crunch has indeed bottomed out after two years of pain. Technically speaking, the major indices gained substantially in the last fortnight and the Nifty is poised just below its own 200 Day Moving Average (DMA).

The 200 DMA is considered a good indicator of long-term trends - in a bull market indices tend to trend above their 200 DMA and vice versa. A Nifty breakout above the 200 DMA (around 7,880 at present) would trigger further buying from programme traders, who use systems based on moving averages. Such a breakout could mean the current bullish sentiment will be sustained over the long term.