Markets To Remain Cautious. Expect A Range Bound Trade.

May is going to be a big month for the Indian equity markets. Rather it would not be wrong to say that the, this was the month everyone on the street was waiting for. Reason behind the same is quite simple, a lot of data points would be announced this month, the most important being the results of General elections. However ahead of the poll results there are other few data points that would be announced. The IIP numbers and inflation figures would be announced ahead of the poll election results. We have been consistently saying that, one of the major worries for the new government would be higher inflation. The unseasonal rains have affected crop and hence there is a high possibility of vegetable, fruits and food grain prices remaining higher. And if the inflation remains high, we feel the RBI would keep the key interest rates higher. This would indirectly affect the growth rates as the Capex cycle would get impacted.

All in all, what we would like to say is, while the formation of new government is a positive aspect for the markets, there are going to be lot of challenges in-front of the new government. Hence we feel the investors would cautious till these data points are announced. What we want to say is, though the market is now giving lot of weightage to the election outcome, but other key concerns relating to monsoon, global growth and our macro-economic concerns will take a centre stage in the second half of the year.

If we take a look at the month of April, it was quite an easy month for the investors’ fraternity. The FIIs were continuously buying the Indian equities, helping the indices sustain its higher levels. But towards the end of the month the quantum of buying was slowing down. However the positive aspect was, despite the continuance of taper, they are still positive or are net buyers. But the comparatively lower net buying indicates towards the cautious moves of the investors. Another pointer has been that, the Indian equity markets in the last five trading sessions have consistently witnessed a downward move.

On the domestic front, another factor driving the markets is March 2014 quarter results. The results till date have been in-line with the street estimates. Best part is, there are hardly any negative surprises this quarter. But yes the few of the positive surprises are there from the steel sector.

As on the global front, everyone was awaiting the data from the US nonfarm job data. The job data figures were better than the street estimates and helped the US equity indices move northwards. According to Bloomberg report the US equity stocks rose for the week, with the Dow Jones Industrial Average reaching a record, as earnings topped forecasts and the Federal Reserve said it would further trim bond purchases as the economy gains momentum. However the Ukraine and Russia geopolitical issues are still hovering over the global equities. If we take look at the movement of US equities, it is clearly visible that, the tensions in Ukraine have offset better-than-forecast corporate earnings. Bloomberg reports suggested that, US President Barack Obama and German Chancellor Angela Merkel set a May 25 trigger for possible economic sanctions against Russia, and the United Nations Security Council held an emergency meeting on Ukraine May 2 after the country dispatched forces to retake a separatist stronghold. We feel the reemergence of the geopolitical risk would affect the equities globally. It was no surprise that the US indices on Friday closed marginally in red. The Dow closed at 16512 (Down 46 points) and S&P closed at 1881 (Down 3 points).

As for the Asian markets, the final HSBC Holdings Plc/Markit Economics China manufacturing gauge was due today and it arrived at 48.1 against the preceding 48. This is still showing a contraction. The Shanghai Composite is down by 0.32%. All other indices are also mostly down with Hang Seng Losing near to a percentage point

SGX Nifty is trading with gains of 15 points (0.22%). A good Amount of selling in the past five trading sessions seems to have made the markets bit fair on valuations. And hence the some value buying may happen. However, overall the mood seems to be cautious. We are expecting a positive opening for the Indian markets.