Markets Likely To Extend Gains

It seems that the Indian equities are following the global equities very religiously. At least the way Indian equities snapped the three day losing streak amid firm global cues, indicates the same. Apart from strong global cues, it was the strong financial performance of many automobile companies that led the recovery of indices. The 30-share Sensex ended up 190 points at 25,519 and the 50-share Nifty climbed 57 points to end at 7,626. Amid all this, the Indian rupee was trading marginally lower at Rs 60.17 compared to the previous close of Rs 60.14 against USD. However, gains in stock markets helped improve sentiment for the Indian currency.

As for today there are two major macro data announcements expected today. Today the government will release index industrial production (IIP) data for June 2014 and WPI inflation data for July. And on Thursday data on WPI inflation for July will be released.

If we take a look at the expectations June IIP this time the industrials are expected to contribute more to the GDP growth. Hence we expect the growth in IIP to continue. If we take a detailed look, mining has been doing consistently well and we expect the same to continue this time also. Electricity has also performed strongly and is likely to continue its momentum. Hence the IIP numbers are likely to be very positive. Street Estimates suggests a 5.4% to 5.6 % IIP growth figures. However the inflation figures are likely to remain at higher levels contributed by higher prices of food and vegetable. CPI is estimated at 7.40% against the 7.31 % posted in June 2014.

As for the market outlook going ahead, the recent stock movement has more to do with the results season, which coincided with the Union Budget presentation and the markets are doing a reality check after seeing the earnings growth and the valuations at which the stocks are currently available at in this backdrop. Given the run up seen in the cyclical stocks and with the tide now turning in favour of the safe haven bets, we suggest that one needs to be careful and stock specific while making a fresh investment decision. In the cyclical space, one must look at revenue visibility and stability in earnings before allocating fresh resources.

As for the global markets, US equity indices rose, giving the Standard & Poor’s 500 Index its first back-to-back gains in two weeks, on optimism that tension between Russia and Ukraine will ease and American airstrikes will push back militants in Iraq. The S&P 500 gained 0.3 % to 1936.92. The Dow Jones Industrial Average climbed 16.05 points, or 0.1 %, to 16,569.98, trimming earlier gains of 0.5 percent.

Asian equity indices are also trading in positive zone. Nikkei is trading at 15187 (Up 57 points, 0.38%) and Straits Times is also trading in green with gains of 0.31%. However, profit booking is being witnessed in Hang Seng and Shanghai Composite. While Hang Seng is down marginally by 0.10%, Shanghai is down 0.43%.

SGX Nifty is trading in green with gains of more than 0.57% indicating towards another positive opening for the Indian equities. We expect the Indian equities to open witness another gap up opening and remain in positive zone at least in early hours of trade.