Modi Cabinet To Show The Way

The way Indian markets are behaving it certainly seems that that the market participants are looking for more triggers. After the announcement of election results the markets have remained range bound are surely looking for more triggers. As a result though there is good amount of volatility on the intraday basis, but on the closing basis the markets have remained highly range bound. Yesterday also the markets moved northwards to gain more than 250 points, however towards the end trading session the markets witnessed profit booking taking the indices southward. The Sensex closed at 24374 (Up 78 points) and Nifty closed at 7277 (Up 24 points).

We feel there are a few triggers in the next week. The first and the foremost trigger would be the formation of government and its key cabinet ministers which will be appointed. We feel a lot depends on which responsibility is being given to which person. There are a lot of issues to be tackled in the ministries like finance, power, mining and even the infrastructure as a whole. With such challenges, the Prime Minster has a tough task ahead. We expect a lean cabinet as the PM would like to keep things under his control. We also expect the divestment of PSU to be another important trigger which would provide a much needed impetus to the listed as well as the unlisted PSUs. So the formation of the new cabinet may provide some trigger to the markets.

The next in line is the RBI policy announcement on June 2, 2014. Since the BJP has got the majority, everyone is keen to know the stance of RBI in current scenario. We had categorically stated that, it needs to be seen how the new government would sync along with RBI. With inflation remaining above the tolerance levels of RBI, we do not expect any rate cuts this time. And this would be a major road block for the government to bring back the GDP growth on track.

Hence we feel the markets today is also expected to remain highly range bound even today and will shape up after the cabinet is announced. Apart from this, on the commodity front the gold imports are seen rising to 950 MT. This may result in some support for gold prices.

On the global front US stocks rose, following yesterday’s equity rally, as data showing an increase in manufacturing and existing-home sales overshadowed a rise in jobless claims while retailers advanced on earnings reports. The Dow ended higher for the second straight session yesterday, led by small-cap stocks, while the NASDAQ climbed on a rally in biotech shares. The Dow closed at 16543 (up 10 points) and S&P closed at 1892 (Up 4 Points).

Asian stocks rose, fueling a second straight weekly advance in the regional index, as the yen held declines near a one-week low. The improved macro economic data from China announced yesterday also helped the indices. Today the Nikkei is trading in green with gains of almost 1%.  Hang Seng is also trading in green with gains of 0.15%. Shanghai Composite However is trading weak with marginal losses.

The SGX Nifty is trading with gains of 23 points at 7320. We feel the Indian equities would open in green. However ahead of Cabinet formation on Monday which would be a good trigger for the markets, indices are unlikely to make any advancement. Hence we expect another range bound session for the Indian equities today.