Markets May Open Positive Due To Global Rally

The Indian markets yesterday found a boatload of cues to move on. The domestic factors included the release of the wholesale price index (WPI) inflation data and the Q2FY13 result announcements of RIL and Axis Bank while the international factors included the release of key data from the U.S. and China. These factors brought in a mixed directional sense for the markets and after the markets opened lower, they inched upwards in the second half, ending with tepid gains. The Sensex closed higher by 38.37 points at 18,713.55, up by 0.21 per cent and the Nifty closed higher by 11.20 points at 5,687.25, up by 0.20 per cent.

Due to a rally seen worldwide on the back of data from the U.S. and China, we expect a favourable backdrop for the Indian markets to operate in and expect the markets to open on a positive note.

The American bourses went through a healthy rise and the markets ended the day higher in the range of 0.65 per cent and 0.80 per cent. This was due to a pick-up in consumer demand as the economy now approaches the year-end festive season. There was 1.1 per cent advance in the American retail sales in September and there was a revision in the August figure, moving it higher to 1.2 per cent. This marks the data peaking to this level after October 2010. Moreover, Citigroup’s earnings too rose beyond expectations, providing further stimulus for the markets to rise.

The European leaders are planning to meet later this week, Thursday and Friday, amidst a situation where hopes on Spain formally asking for a bailout have been diminishing. There is tons of speculation ahead of this meeting as there is also uncertainty over the decision to release the last tranche of aid to Greece. Though there surrounds uncertainty over this issue, the equities saw gains due to positive data from the U.S. and China. The European markets ended the day in the green in the range of 0.22 per cent and 0.91 per cent.

The export data from China has come out to be surprisingly strong over the weekend. This was supported by inflation in China which is close to a two-year low, thus giving room for the government and the central bank to act towards boosting the economy. This resulted in a strong opening of the Asian markets with the Hang Seng, Nikkei and Shanghai Composite gaining 0.51 per cent, 1.06 per cent and 0.51 per cent respectively.

There has been a drop in commodity prices worldwide due to the U.S.’ data giving a boost to the dollar. Moreover, the euro has been trending quite low due to uncertainty over Spain and Greece.

Since inflation data in India came in stronger than expected with the WPI rising by 7.81 per cent in September - reaching a 10-month high - the rupee has been seeing some weakening. As the Indian markets shift their focus from reforms and macro issues in line with fiscal policy to corporate earnings, RIL yesterday posted their fourth consecutive YoY drop in profit due to declining gas output and due to pressured margins. The net profit of RIL dropped by 5.7 per cent while its topline grew by 15.4 per cent.

Axis Bank too announced their Q2FY13 results yesterday, marking a 22 per cent YoY rise in net profit. The net interest income (NII) was also boosted by as much as 16 per cent. Though the numbers were better than street expectations, the bank saw some deterioration in its NPA numbers which rose from 1.06 per cent to 1.10 per cent. Overall this resulted in a 0.15 per cent decline in the stock prices of Axis Bank.

There is no heavyweight announcing results today to cause any significant movement in the markets on account of corporate results. However, due to a positive global environment we expect the markets to open positive. A cloudy outlook created by inflation data though may result in some downward pressure on these gains.