By Ambareesh Baliga
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The Nifty dropped about 1 percent for the week on the back of weak corporate earnings and a washout of the first week of the crucial monsoon session of the parliament.
Equity, commodity and currency markets were volatile globally, while a slowdown in China led to a sharp fall in base metal prices and the Iranian nuclear deal led to a fall in crude oil prices.
Among the corporate results, Infosys was the highlight as it raised full year revenue growth guidance. But the list of companies who announced weak results outpaced those that beat forecasts. Lupin, GAIL, Axis Bank, Wipro, HDFC Bank and HUL reported weak results and their respective stocks reacted negatively.
Reliance Industries reported GRM at $10.40 a barrel, up 3 percent as against market expectations of $9.50 a barrel. Overall, its petrochem and refining business performed well, while its oil and gas business turned weak leading to flat earnings. The stock has had a dream run for the past five weeks but corrected marginally before the company’s results were declared on Friday. The stock may see mild selling pressure in the upcoming week.
Gold slipped to a four-year low due to a sell-off in China and Brent crude also fell to a three-month low of $55/bbl. Low inflation, global risk-off and a strengthening of the dollar is putting pressure on international gold prices, which is trading below $1,100 an ounce. Back home, jewellery stocks gained between 10-15 percent on expectation of a fall in input costs, giving them better leverage in the coming festival season. However, jewellers are expected to report weak earnings in the coming quarter as a mark-down in inventory will come into play. Immediate demand is not expected as buyers would typically wait for a further decline in prices.
Meanwhile, the first week of the monsoon session of parliament which commenced on July 21 has been a complete washout, with the opposition Congress party insisting on the resignation of BJP leaders tainted by corruption allegations before they allow proceedings to take place. Some key reform bills like GST, land acquisition and labour and tax are on the table. These bills have been referred to various committees to build a consensus, but a face-off between the ruling party and the opposition has led to fears that no major bills will get passed during the session.
The passage of bills to implement GST and direct transfer of subsidies would be essential to keep the reform momentum going. The markets will watch out for progress during the parliament session, the U.S. Fed’s policy decision, monsoon and corporate earnings.
Key results for the week are Ambuja Cement, MRF, Tech Mahindra, Blue Star, HDFC, Thermax, Dabur, JSW Steel, Godrej Consumer Products, Nestle, Colgate-Palmolive, Dr.Reddy’s, IDFC, ITC, ICICI Bank and Titan.
Other events schedule for the week include India’s fiscal deficit data for the month of June and a fortnightly review of fuel prices by PSU oil marketing companies, who are expected to reduce prices.
On the global front, the policy decision by the U.S. Federal Reserve will be closely watched. The FOMC holds a two-day policy meeting on July 28-29, where investors will be looking for clues on whether the Fed is closer to making a decision on raising interest rates. It is widely expected that the Fed will raise rates at least once in 2015, possibly in September.
Back home, volatility is expected to remain high on account of derivative contract expiry on Thursday and a spate of global and local factors. Though the Nifty’s momentum was strong in the last few weeks, the index is witnessing stiff resistance at 8,600-8,650. Considering the quantum of news flows in the coming week, even traders would be better off remaining on the sidelines. Those who haven’t booked profits should consider doing so.
The general bias in the markets is that of bullishness with the majority of experts betting on levels of 9,000+ for Nifty by the year’s end. However, I believe we could see weakness before achieving those levels as it would be difficult for the fundamentals to catch up so soon to justify prices. I would remain on the sidelines and wait for better entry levels instead of jumping the gun for gaining from the short term volatility.
