Markets Likely To Consolidate

Indian equity benchmark indices extended the gains for second day of the week. The up-move was so strong that leading benchmark indices surged more than 1%. To quantify, the Sensex jumped 362 points or 1.4% to end at 25881 recording its highest daily gain since June 6 and the Nifty ended 101 points higher to close at 7727.

If we take a look at the factors that guided the indices to higher levels, it was the easing of geopolitical tensions in Ukraine and Russia which helped the global equity indices witness some amount of rebound. On domestic front the rally was led by the automobile companies led by Tata Motors that posted extremely strong financial performance. Further there was some renewed interest in the financial services companies. Apart from that, FIIs were buyers in the past two trading sessions on account of renewed interest in the Indian equities after remained out for some time. However here we are of the opinion that the FIIs would now be more interested in the Mid Cap and Small Cap companies as the thresh hold limits in the large cap companies is almost hitting its allowable limits. It is true that some amount selling is being witnessed in the small cap and mid cap companies. However it should be taken as an opportunity to buy quality mid cap stocks at right valuations.

While the indices surged yesterday (Especially in the last hour of trading session) ahead of the announcement of IIP and CPI numbers, the data on the same front has not been very encouraging. June IIP numbers which were estimated at 5.4- 5.7%, actually arrived at just 3.4%. This clearly indicates that the industrial activity is yet to pick up full fledged. If we take a look in details, while electricity and mining showed growth, the consumer goods and consumer durables contracted more than the estimates. This resulted in overall industrial production growing slower than the street estimates. Further the July CPI inflation stood at 7.96% as against the 7.46 %, month on month basis. It was the higher food inflation that resulted in higher inflation.

Now going ahead we feel the macro data announced after market hours yesterday may affect the market sentiments. Though the indices witnessed an up-move in the last two trading sessions, delivery volumes were quite on the lower side. Further there is no conviction among the investors to buy at lower level; however profit booking is likely to occur at higher levels. Hence we would not be surprised if the Indian equity indices open on a weak note today.

On the global front, The US market pulled back slightly yesterday, following two days of gains, as investors focused on the damage that ongoing geopolitical tensions were causing the global economy. Energy stocks were among the biggest decliners, dragged down by lower oil prices. The news reports also suggested that, US stock indexes opened modestly higher but turned lower at mid-morning and stayed there for the rest of the day. Investors took a cue from Europe, where Germany's benchmark index fell more than 1% and France's CAC 40 fell nearly 1%. An indicator of German investor confidence dropped to its lowest level in 20 months. Investors are worried that the Ukraine crisis will start dragging down the German economy. The Dow Jones industrial average lost 9.44 points, or 0.1 %, to 16560.54. The S&P 500 index declined 3.17 points, or 0.2 %, to 1933.75 and the NASDAQ composite fell 12.08 points, or 0.3 %, to 4389.25.

The Asian indices are also trading on a weak note as investors weighed earnings reports and awaited economic data from Japan. Nikkei is trading flat with negative bias. Hang Seng and Shanghai Composite are however trading with Marginal gains of 0.10%.

SGX Nifty is trading in red with decline of 21 points (Down 0.30%). This indicates that the Indian equity indices are likely to open on a flat note. As stated earlier there is hardly any buying happening at lower levels, but profit booking would occur on regular basis. Expect a negative opening for Indian equities.