Expect A Buoyant Trading Session

Bull case for Indian equity markets seems to be getting stronger day by day. After remaining quite a range bound from the poll results the benchmark equity indices got a trigger in the form of RBI policy announcement. Along with the dovish stance taken by RBI, the markets also got a boost from the better than expected results for the March 2014 quarter. If we look in the results of BSE 500 companies (Which contributes to more than 80% of market capitalization), the bottomline growth (Adjusted for Refinery companies) has been more than 19%.  This is a strong performance as compared to the preceding three quarter of the FY14. Apart from that the strong tart of BJP Government on its agenda to revive the Indian economy also helped the markets move northwards.

It was no wonder that Benchmark indices ended at new record closing highs yesterday, the first working day of Narendra Modi-led NDA government in parliament. To put the figures in perspective the Sensex yesterday first time closed above the 25000 mark. While the Sensex closed at 25019 (Up 214 points), Nifty closed at 7474 (Up 72 points). It was the rally in metals, oil & gas and FMCG stocks helped the BSE Sensex to close above the 25,000-mark for the first time ever.

While the benchmark indices moved northwards to close at record highs, it was the midcap and smallcap equity indices that have outperformed in the preceding week. The out performance of these broader indices is also been seen clearly on the YTD basis also. We feel as the outperformance is likely to continue as large Cap valuations are getting richer and midcap and smallcap valuations are yet to catch up with largecap.

As for the Global markets, US equity benchmarks rose to record highs as European Central Bank stimulus boosted optimism in the global economy before tomorrow’s jobs report. The Standard & Poor’s 500 Index rose 0.7 percent to 1,940.46 at 4 p.m. in New York. The Dow Jones Industrial Average added 98.58 points, or 0.6 percent, to 16,836.11. Both gauges closed at all-time highs. As about expected Job data, The U.S. Bureau of Labor Statistics report today may also show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the previous month, according to the median estimate in a Bloomberg survey of economists. This would take the indices higher further.

The European Central Bank cut its deposit rate below zero. ECB President Mario Draghi reduced the deposit rate to minus 0.10 percent from zero, making the institution the world’s first major central bank to use a negative rate. In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan. A worsening in the euro area’s economic outlook and a prolonged spell of slow inflation prompted the ECB to act to preserve the fragile recovery in the world’s second-largest economy. We feel this would be taken as a positive move.

Asian markets have opened on a flattish but positive mark. Hang Seng is trading with gains of 0.28% and Straits Times is up 0.40%. However Nikkei and Shanghai Composite both are down 0.14%. The SGX Nifty however is the biggest gainer with an up-move of 0.41%. We expect the Indian equity indices to open on a strong note and then remain buoyant over the trading session. Midcap and Small Cap indices are likely to outperform today also.