Monsoon to guide mkts in near-term 

If news on progress of monsoon turns out good, markets are likely to turn bullish

The BSE Sensex last week continued to go up and marched past THE 27K-mark once again but failed to stay there for long as increased selling in the form of profit-booking forced it to close lower than the psychological round figure of 27,000 as also lower than the previous week's closing. The market gauge that gained as many as 1,352 points and 189 points respectively in the preceding two weeks, closed lower by 207 points in the week ended June 10.

Although the markets had surged up initially on the hopes of a good monsoon this year and likely passage of the GST Bill in the ensuing monsoon session of the Parliament, and also on status quo as maintained by the Reserve Bank of India (RBI) in regard to the interest rates the markets in the last couple of sessions surrendered to profit-booking and global cues as worries about the slow progress of the monsoon also weighed. The BSE Sensex that had reached the 27,105 level, the highest since October 29, 2015, on Wednesday of the last week, therefore, plunged below the 27K-mark once again. The weak IIP numbers as announced on Friday also took a toll.

The BSE Sensex had jumped up by 1,352 points about three weeks ago, mainly on the prediction of a good monsoon this year. In the week thereafter, the market barometer could gain only 189 points as the progress of the monsoon turned out to be very slow. Since the speed of the markets going up slowed down so immediately, most of the market punters who based their buy-sell decisions on the momentum theory, turned the net sellers and booked profits.

The news from overseas markets was also discouraging as on one hand it was a fear of the US Federal Reserve moving towards hiking the interest rates and on the other, Britain was likely to exit from the European Union. Both these hurt the market sentiment globally and the Indian stock markets being not immune to global news, were also hurt. The weak IIP numbers for April 2016, also dampened the market sentiments as these were at a saddening minus 0.8 per cent.

With the RBI already done with its bi-monthly review of the monetary policy on Tuesday of the last week and keeping the interest rates unchanged as envisioned by most of the market experts, it is the progress of the monsoon that would guide the Indian stock markets for near-term move. The monsoon is reported to have set in Kerala and is predicted to progress towards Goa and Konkan and thereafter spread towards other parts of the country in the next couple of weeks. However, since it is already late by a week, the market punters would prefer more to see its actual progress and then only venture into buying shares.

So, if the news pertaining to the progress of the monsoon turns out to be good, the markets are most likely to halt their downtrend and turn bullish. The country's foreign exchange reserves have hit a record high at $364 billion in week to June 3. The indirect tax mop-up has also risen by 33 per cent in May. These certainly indicate that the economic activity in the country is expanding.

The FIIs have also continued to be net buyers in the last many sessions. The Indian Government is also likely to place the most crucial GST Bill for voting in the Rajya Sabha in the ensuing monsoon session and hopes that it would be cleared this time. All these factors would help the markets to go up once the news of the monsoon turns out to be good.

Generally, the seasonal buoyancy sets in the markets sometime in mid-July every year. This time too, it is most likely to set in the middle of June and maybe, even earlier, as the aspirations are very high. Since the markets are expected to rise and shine from mid-July, shrewed and discerning investors must not wait till the markets entered seasonal buoyancy in Mid-July but should start buying now when prices are still affordable.

Out of 87 scrips that gained between five per cent and 20 per cent on Friday, at least 19 were from sugar industry segment. This means that long-term and major investors have already started mopping up sugar industry shares. Investors are therefore suggested that at least two to three different sugar company shares must be in their portfolios as it is this segment that is going to remain in forefront when the markets are going to rally in the next few weeks.

By Talakshi Gosar