Expect A Range Bound Trade

The way Indian equity markets have moved southwards in past two trading sessions, it seems that market is finding it difficult to stretch itself to higher levels after it declined for the second session. If we take a look at the factors behind such a decline, weakness in US Markets spoiled the mood in Asian markets and India was no exception. 

Markets retreated for the second straight day from record highs on concerns that foreign funds may start trimming their exposure to emerging markets if the US Federal Reserve hikes interest rates sooner-than-expected. Further, the weak rupee also weighed on market sentiment. The Sensex ended down 208 points at 27057and the Nifty closed 59 points lower at 8,094. However in broader markets, the BSE Mid-cap index ended flat while Small-cap index closed 0.6% higher. One positive point in the same was that, market breadth ended strong with 1739 advances and1278 declines on the BSE. Another positive factor was that, over 360 stocks hit the 52 week high.

We are of the opinion that INR would be playing an important role now. The INR yesterday was trading lower at Rs 60.90 against the US dollar compared to the previous close of Rs 60.60. The rupee weakened to its lowest in nearly a month on Wednesday tracking falls in emerging markets due to worries the US Federal Reserve would raise interest rates earlier than expected, although exporters’ dollar sales capped broader falls.

Going ahead we feel there are few positives emerging as Government is looking at Rs 45700 crore of divestment from the companies like ONGC, Coal India and NHPC. While ONGC and Coal India are likely to Divest around 10 % and NHPC would be divesting around 11.36%. At current market price while ONGC offer would be of around Rs 23613 Crore, Coal India would be 19048 crore and rest would be from NHPC. Best part is retail investors would be getting 5 % discount. While the offers are likely to boost the primary market floor, it would also be helping Government in reducing the fiscal deficit.

As for the Indian markets, Indian markets are in bull phase for next few years however global cues, especially interest rate hike by the US Federal Reserve, continue to be the biggest risk for Indian equities and could spoil the party. Experts foresee a 5-7 percent correction from the current levels. The Indian market has been moving higher on positive domestic developments; other emerging markets have also done well because of strong global inflows, but given the global cues one could see a tactical correction in emerging markets. But it should be taken as an opportunity to make a long term portfolio.  

On global front, US markets rose, with the Nasdaq 100 Index recovering almost all of yesterday’s losses, as a rally in Apple Inc. lifted technology companies while investors continued to speculate on the timing of interest-rate increases. The Nasdaq 100 advanced 0.8 %. The S&P 500 rose 0.4 % to 1995.69, after falling 1 % during the previous two sessions. The Dow Jones Industrial Average added 54.84 points, or 0.3 %, to 17068.71. As for data points going ahead, macro data this week may show that claims for unemployment benefits fell, retail sales improved, and consumer confidence rose, strengthening the case for higher rates next year as US economy continues its recovery.

Asian markets are providing positive cues with Nikkei trading in green with gains of 0.47%. Even Shanghai Composite is also trading in green with 0.24% gains as the CPI figures in China arrived at 2% as against the street estimates of 2.2%. This provides some solace to Chinese markets. Hang Seng is trading flat. SGX Nifty is also trading almost flat with loss of just 4 points.

We are of the opinion that the Indian equities are likely to remain range bound today ahead of important announcement of CPI and IIP data tomorrow. Further the US Fed meeting for interest rates scheduled on 16-17th of September also making many investors a bit nervous. We expect Indian equities to open on a flat note and remain range bound in early hours of trade.