Markets To Cheer As Monsoon Revives

Indian equity markets remained a quite volatile in preceding week with many macroeconomic factors and also the geopolitical factors making an impact. Over the week, the key benchmark indices Nifty and Sensex rallied around 2.5-3 percent during as investors cheered the improved macro-economic data and the RBI norms that will help infrastructure firms and affordable housing projects get cheaper loans from banks. For the week, the Sensex ended at 25,642 levels and the Nifty at 7,664 levels.

Investor sentiment, which went for a toss last week over a lackluster budget, was bolstered by better-than-anticipated June inflation numbers and trade data. WPI-based inflation eased to a four-month low in June, rising 5.4 percent year-on-year (YoY) as compared to 6.01 percent YoY in May. Consumer Price Inflation (CPI) was 7.3 percent in June, significantly lower than 8.1percent a month earlier. This has sparked hope that the Reserve Bank of India (RBI) may lower interest rates in the near future. But this has headwinds as inflation is expected to spike once again owing to the recent rise in onion prices and a question mark on the revival of monsoons.

The merchandise trade numbers were also released in preceding week. It indicated robust expansion of exports in the month of June. Exports grew 10.2percent Y-o-Y while imports grew modestly at 8.3percent. The trade deficit for June stood at $11.8 billion, marginally higher than the $11.2 billion seen in June 2013. Broader markets outperformed the benchmarks significantly as economic recovery hopes gained currency in the aftermath of the Modi Budget and the Reserve Bank of India (RBI) easing of infrastructure lending norms for banks. CNX Midcap Index and BSE small-cap indices rose over 5 percent each.

While the preceding week was quite volatile with few Geopolitical factors also affecting the indices, the new week is expected to start with a new zest. The results season has started on a very strong note with most of the results being better than the estimates. While the IT companies have delivered good results on account of improving scenario in US markets, even the banks have shown some improvement  on non-performing assets front. While good corporate results is factor that helped the Indices remain buoyant, we do not expect any major disappointment on results front going ahead.

Apart from good results, revival of monsoon is another positive factor. There was strong revival on the monsoon front as rain deficit now remains on 15% according to IMD. This is a remarkable improvement from deficit of as from as 43%. We the revival may help in terms of reducing the vegetable prices which had appreciated significantly in last fortnight.

While this is a scenario on domestic front, on the global front also there are few factors to be seen for. Uncertainly took over Wall Street Thursday as investors fled stocks, giving the S&P 500 its first decline of more than 1 percent in three months. Friday's rebound, however, suggests that the market's attention to Ukraine and Gaza will be limited unless a wider conflict erupts, with investors instead keeping their focus on earnings.

As for Asian Indices, Asian stocks rose, joining a global rebound after Geopolitical issues in Ukraine and Israel’s invasion of Gaza roiled markets. Asian equities are following a July 18 rebound in the US, where better earnings from Google Inc., refocused investors on economic growth amid crises in the Middle East and Ukraine.

Leading indices like Straits Times (Up 0.12%), Hang Seng (up 0.1%) and Kospi (Up 0.23%) are clearly showing positive trends. Shanghai Composite is however in red with a marginal loss of 0.04%.

SGX Nifty is trading with gains of 27 points (Up 0.34%). This indicates that the Indian equities are likely to open on a positive note and then remain in a positive zone in early hours of trade.