Markets log gains for the second week on rate-cut hopes

In the week to May 15, the Sensex settled at 27,324, higher by 219 points and Nifty ended at 8,262, up 0.7%

The equity markets registered gains for the second straight week, led by a smart rally in financials and auto stocks, on anticipation that softening inflation will give the Reserve Bank of India (RBI) the room to ease monetary policy.

In the week to May 15, the Sensex settled at 27,324, higher by 219 points, or 0.8 per cent, and the Nifty ended at 8,262, up 71 points or 0.7 per cent.

The BSE Mid-cap Index climbed 3.2 per cent and the BSE Small-cap Index advanced 2 per cent.
 

MARKET VIEW

“Near term charts indicate a crucial support around 8000 mark, which is also the key support of the downward sloping trendline as shown in the chart. The short term charts could complete a formation of a higher top and higher low only if spot Nifty breaks above the 8355 mark in the coming week. That would be the key level watched by traders this week. The last 3 days of Nifty price action are still engulfed within the price action of 12th May where the index fell by almost 200 points. Therefore, for bulls to be back in action, we believe the candle top of 12th May needs to be taken out. i.e. 8350 levels, a significant price level,” said Kunal Bothra, Head – Advisory, LKP Securities.

 

KEY EVENTS

Oversupply concerns coupled with strengthening of dollar has pushed oil prices lower and has allowed it to settle below $60 per barrel. 

The rupee closed at 63.51 against the dollar in the view of recovery in the equity market amid sustained dollar selling by exporters.

The inflation numbers showed that India’s retail inflation has softened further to a four-month low of 4.87% in April compared to 5.25% in March and the wholesale price inflation has contracted for the sixth straight month to a low of -2.65% in April compared to -2.33% in March. The factory output growth slowed to a five-month low of 2.1% in March as against 5% registered in February.

However, the imposition of minimum alternate tax, stalled economic reforms, dismal corporate earning and delay in the passage of land acquisition and GST bill are some of the setbacks of the Narendra Modi government in it's first year in office.
 

STOCKS

On the sectoral front, 8 out of 12 sectoral indices ended in the positive territory with BSE Auto index gaining the most.

Auto and banking shares gained across the board on hopes that RBI Governor Raghuram Rajan will cut interest rates to revive growth. Axis Bank, Bajaj Auto, HDFC twins, M&M, SBI, Hero Motocorp and Maruti Suzuki gained between 1-10%.

GAIL jumped nearly 3% on reports that GAIL India is in talks to acquire Dabhol's 5 million tonne per annum regasification terminal.

NTPC slipped 4% after the cabinet cleared a proposal for 10 per cent disinvestment in Indian Oil Corp and 5% in NTPC, which may fetch the government close to Rs 8,500 crore at current prices.

In the pharma space, Lupin slipped 5% after reporting a 1% year-on-year (yoy) decline in consolidated net profit at Rs 547 crore for the quarter ended March 2015 (Q4), due flat growth in sales.

Dr Reddy's Laboratories gained 4.25% after the company posted an eight per cent growth in consolidated net profit for fourth quarter ended March 31, 2015 at Rs.519 crore against Rs.482 crore in the year ago period. 

In the metal pack, Tata Steel lost 0.8% as the company anticipates to take a non-cash write-down of the goodwill and assets in the consolidated financial results in the fourth quarter for the year ended March 31,2015 of nearly Rs 6,500 crores, mostly associated to the loss-making long products  business in UK.

 Vedanta Resources reported a significantly wider full-year net loss due to a hefty writedown of its oil and gas business due to tumbling oil prices. Reacting to the news, Vedanta shed 3.8%.

Hindalco dipped 1.4% after the quarterly earnings of its subsidiary Novelis missed street expectations.

OUTLOOK

Asian Paints, Tata Power, Tata Steel, Bajaj Auto, Coal India, ITC and SBI will announce their quarterly results in the forthcoming week.

The macroeconomic data, trend in global markets, the movement of rupee against the dollar and crude oil price movement will also dictate the trend on the bourses in the coming week.

Investors will keenly await any major announcements during Prime Minister Narendra Modi's ongoing three nation official visit to China, Mongolia and Republic of Korea.