Markets likely to rule both ways

Despite waning hopes of an early interest rate cut, Sensex logs first weekly gain

Even though individual and institutional investors continued to pull out cash from the stock markets globally, either by dumping stocks directly into the markets or through mutual fund unit redemptions, as have been reported by Bank of America Merrill Lynch, and also despite disappointment arising out of the fresh tax treaty signed between India and Mauritius whereby investment in the Indian stock markets through P-notes will likely to be negatively affected, besides poor show on the GDP growth front as reported by the Government, the Indian stock markets last week stood to gain albeit only insignificantly, with a paltry gain of 117 points over the previous closing. Thus, the week ended May 13 turned out to be a bullish week after two consecutive weeks of losses.

The cues from most of the foreign peers continued to be negative and their closings on a weekly basis, mostly being in the red the Indian stocks did not heed much to the foreign news and instead closed higher than the previous week's closing. The month of May thus far did not turn out to be a bullish one as the markets lost 261 points till Friday of the last week from its April closing of 25,490.

The major factors that aided the Indian stock markets close higher included the fast-approaching monsoon season and a positive ongoing corporate number season. Also, increasing hopes of a fresh interest rate-cut by the Reserve Bank of India (RBI), when its Governors' board meets early in June, to review monetary policy, and its US counterpart, the Federal Reserve, dropping the idea of hiking the interest rate in June, helped the markets end the week in the positive territory.

However, failure of the Government in getting the crucial GST Bill cleared in the Upper House of the Parliament, certainly hurt the market sentiments, but that caused no harm to the prices as no one in the markets had expected to see the Bill going through in the Budget session. A few positive Q4 numbers and small-scaled but sustained buying support from the domestic as well as the foreign institutional investors were yet other factors that did not allow the markets fall too much during the time when most global peers tumbled down on variety of negative news.

However, the 300 pints' fall on Friday, the last trading day of the week, being attributed mainly to the faltering GDP growth and increased inflation, and the resultant likely denial of a rate cut by the RBI when it reviews the monetary policy early in June, and the last day's fall being fresh on the minds of the market participants, may continue to impact the decisions to be taken for buying or not buying the shares when the markets reopens today for the new week, could cause further erosion in the prices of stocks, though only temporarily.

The markets are, therefore, most likely to fall further down initially in the new week but are expected to resort to their uptrend as the date with the monsoon is coming just closer. With the onset of the monsoon by May 30, as has been predicted, the demand for shares is most likely to increase and the prices are expected to rise.

It is, therefore, advisable for the prospective buyers not to wait too long to see the prices to go further down, for buying. Besides the timely onset of the monsoon and the likely postponement of an interest rate hike by the Federal Reserve in mid-June, would make the Indian stock markets resume their uptrend from next week. Even though the inflation rate has gone up, the RBI may come out with a positive surprise by cutting the interest rate by 25 basis points in its early-June Monetary Policy review.

The GST Bill, though could not be passed in the Budget session of the Parliament, which is now concluded, has not been shelved by the Indian Government. With the 63 members of the Upper House already retired and most of them being the Congress party members, there is a possibility of the opponents' number getting shrunk and the number of supporters to the GST Bill likely to increase, there is a possibility of getting the crucial Bill cleared in the next session, whenever it meets.

So, there are three major bullish factors that the prospective investors could bank upon more and expect them to create a positive impact on the markets. Of the three, monsoon is going to be the first one and of course the most powerful one, on the markets, must be taken into consideration first and therefore, agro-chemical company shares be lifted first.

In fact, these shares have already been on the run and therefore, must be bought immediately. The most potential winner in this industry segment is going to be GNFC. The last year's drought situation in many sugar cane-growing areas has compelled the sugar-crushing season end early. This means that sugar prices are going to go up in the next few months. Brazil, the world's largest sugar cane and sugar producer is also said to have produced much less sugar this year.

Therefore, sugar prices will go up even globally. The sugar company shares could, therefore, be expected to significantly shine in the months to come. Prospective investors must not forget to keep at least one or two sugar company shares in their portfolios. The most preferable from this industry segment would be Balarampur Chini and Dhampur Sugar as these two are still available in the middle price-range.

By Talakshi Gosar