Markets remain under pressure

The impact felt on the markets last week was that of purely demand and supply dynamics. The supply side pressures that pushed the prices down are likely to continue as there are no major bullish triggers in sight

After a sharp, double-digit rally in March, the BSE Sensex seems to have lost momentum as it has already shed 806 points from the recent peak of 25480 reached on March 31. Concerns over poor March quarter earnings, FII selling, uncertainty over monsoon as well as a drop in global growth rate and a possible rate hike by the US Fed are some of the factors weighing on the domestic markets.

With the Reserve Bank of India coming out with a widely-expected interest rate cut of only 25 basis points and thereby disappointing the market optimists including foreign institutional investors (FIIs), who expected a bigger rate cut, Indian stock markets changed their course, from rising into a declining one as the FIIs who had been net buyers of equities to the tune of about a hefty Rs 25,000 crore in the just by gone month of March, turned into net sellers, post the monetary policy announcement on Tuesday of the last week.

The increased offerings by the FIIs as well as major bull operators took a heavy toll on the blue-chips and leading ones including major lenders. The BSE Sensex lost 596 points this week and slumped below 25K mark, once again. Besides profit-booking by FIIs and major bull operators, the concerns pertaining to the fast approaching corporate numbers season also started weighing in. It is a known fact that the corporate performance for the first three quarters ended December, 2015, has remained lacklustre and no major changes in fundamentals have taken place during the last quarter ended March 2016.

Therefore, discerning market operators, particularly holding long positions in derivative contracts, preferred to off-load, lest a major corporate come out with a negative or poor than expected performance for the fourth quarter and spoil the sentiment. Concerns also gripped minds of the market participants pertaining to the next meeting of Federal Reserve scheduled for mid-April, as the signals flashed by its chair, once again pointed a possibility of a further hike in interest rate there. It was this attraction that made the FIIs to sell in India and divert their funds towards the US, making them net sellers of equities thus far in April.

Fortunately, no major good or bad news from foreign markets or nations emanated this week. However, whatever news came could create only ripples that subsided immediately and therefore, the impact felt on the markets was that of purely demand and supply rules after a long time. The supply that pushed the prices down this week is likely to continue as there are no major bullish triggers in sight. On the contrary, the most crucial phase of the corporate earnings season has just come close and the impact of the drought-like situation is most likely to be felt until it starts raining as the monsoon is two months away.

Most of the financial resources with the state governments would have to be diverted towards tackling the issues like drinking water supply and handle other drought related problems. Even the Union Government will have to extend financial help to the state governments and thereby postpone or curtail expenditure on developmental projects that it is presently implementing.

It would therefore be prudent on part of the prospective buyers of equities to control their eagerness of investing in stock markets. Buying may be done in shares of only those companies whose numbers are already out and found to be extremely good as merely good numbers may not help prices to rise, and rise consistently.