<b>Devangshu Datta:</b> Uncertainty still the name of the game

Global growth outlook is dim. In India, firms posted mixed results but expectations were low. Monsoon may reduce rural stress. With markets having crossed into bullish territory, a lot depends now on

Central bank inaction moved financial markets last week. Traders responded with relief to the maintenance of status quo by the US Federal Reserve, as the statement seemed to rule out policy rate hikes in June. The USD weakened a little.

However, traders were hoping for further easing from the Bank of Japan (BoJ). The BoJ's decision to hold policy rates (which are already negative) and to maintain its current quantitative expansion (already massive) rather than increase scale, led to consternation. The yen strengthened and traders went "risk-off". The net effect on most global equity markets was negative and India was also under the gun.

Global growth prospects continue to look dim. China's official data hit targeted 6.7 per cent gross domestic product (GDP) growth on the nail but it is treated with some scepticism. Taiwan, with its strong linkages to the Mainland, has seen three successive quarters of contraction. Recoveries in commodity prices, especially metals, have been driven by stimulus from the Chinese government. Even so, 6.7 per cent is the slowest quarter since 2009. Official and unofficial Chinese Purchasing Managers' Index data will be released this week and so will forex reserve data. That will provide some clues as to Chinese trends.

American GDP did expand in the first quarter (January to March 2016). But advance estimates suggest the pace slowed to 0.5 per cent of GDP. The eurozone logged 0.6 per cent GDP growth. Inflation is running negative. The UK saw slowdown, with 0.4 per cent growth. Japan may have seen marginal expansion, after contraction in October to December 2015. But this may also be a quirk caused by the extra leap day in 2016! Discounting that extra day, Japan may be in recession.

Oil prices have hardened despite lack of agreement between crude-exporters at the Doha meet. Crude prices hit 2016 highs last week and April saw Brent make the biggest monthly gains in seven years. Some traders are now predicting $50 a barrel despite continuing oversupply and slow global growth. That could obviously have an impact on India's budgetary estimates.

India's Q4 data (January to March 2016) for 2015-16 so far suggests that the current account may see a small surplus after 35 quarters of deficits. This is because the jewellers' strike in March led to lower gold imports. The Index of Industrial Production (IIP) data (April 2015 to February 2016) suggest modest expansion - the IIP rose just 2.6 per cent over this period.

 

Railway freight and passenger movement data are said to be running below both budgetary and revised estimates for 2015-16. Port traffic is said to be up substantially, which is puzzling given a collapse of exports and imports.

Many hopes are riding on the Met Department's predictions of a "super-normal" monsoon, with 106 per cent of long-term average rainfall. Rural distress, drought and forest fires cannot be mitigated without an ample, well-distributed monsoon.

There is a significant build-up of new and old geopolitical risks. There are the uncertainties of the US presidential elections in November. There is the UK referendum on Brexit in June. Brazil is seeing turmoil. Greece is back on the financial agenda at a time when the eurozone is stressed about refugees. The eurozone's finance ministers meet next week (May 9) and there could be some market volatility arising from that meet.

It is also earnings season, of course. The world's two most valuable companies, the tech giants Apple and Alphabet, have both taken a hammering on poorer-than-expected results. However, Facebook has done well and Samsung also beat expectations.

In India, results are mixed but expectations were low. Key industries such as banking and information technology (IT) have seen mixed trends. Yes Bank, HDFC Bank and IndusInd Bank have delivered excellent results and those three stocks are hitting new highs. (The Reserve Bank of India has also cleared the way for more foreign institutional investments in Yes Bank).

But ICICI Bank's results shocked, with huge provisioning for non-performing assets (NPA) and profits down by 75 per cent despite massive increase in other income. The public sector undertaking banks are all liable to see muted performances, as they provision huge NPAs off their respective balance sheets.

The IT majors have also produced mixed results and guidances so far. Infosys beat expectations, TCS met them. Wipro and HCL Tech produced disappointments. There may have been some sort of pick-up in FMCG demand, with Dabur and Marico both positing good Q4 results.

However, infrastructure activity may still be under par. Cement majors ACC and Ambuja Cement have seen volume growth but logged lower margins due to lower prices. Construction major HCC has seen a decline in its standalone profit. Reliance Industries has done well with strong gross refining margins.

Technically, the market crossed into bullish territory in the last fortnight, with the Nifty climbing above its own 200 Day Moving Average (DMA). The major driver was strong foreign institutional investments through April. There could be some consolidation near the 200 DMA, given the BoJ-induced sell-off. This rally has yielded 15 per cent gains in two months. But if the index slips below the 200 DMA again, it could still turn out to be a bull trap.