Markets Likely To Consolidate Till LS Polls If Cues Are Divergent

Both bulls and bears are having frenzied wild guesses on the direction of the Indian stock markets. Feeble global cues and robust domestic cues have left the markets bewildered and the investors in a fix. The benchmark indices breached their crucial supports amid the agonising crude saga and the rupee depreciation, while the release of macroeconomic numbers coupled with upbeat July month resulted in immediate pullback in the markets. Whether the pullback will turn into a relief rally or a retreat is something to be watched. The broader markets too stayed rangebound at the lower levels, with no immediate signs of any bounce-back.

The Indian rupee hit its all-time low at 69.09, registering more than 8% depreciation since the start of the year, making it Asia's worst performing currency. The US Federal Reserve's interest rate hikes have led to a plunge in the US debt markets on rising bond yields. The strengthening of US dollar has resulted in flight of capital from emerging markets to the US. Further, the expected scarcity in supply of crude oil has led to increased oil imports. Moreover, the widening fiscal deficit of the country to more than 55% of the full year target in April-May might provoke the RBI to print more currency for government expenditure, resulting in further depreciation of the rupee. The tightening of credit by the RBI and selling of dollars could be two-pronged provisional way of reviving the rupee, but simultaneous raising of rates by other countries would dampen inflows and, thereby, two-pronged of the economy. As it is, the high inflation and the newly declared rise in the Minimum Selling Price (MSP) of agriculture produce will not allow any easing in the near term. Now all hopes are on the monsoon, which may help contain the CPI, which is already expected to rise 50-90 bps on account of MSP announcement.

Apart from the normal monsoons, the robust auto sales numbers rising for the third straight month of FY19 has brought some relief to the investors. The auto sales are expected to continue booming in the coming months despite high running costs on account of higher fuel prices. Further, the revival in PMI has kept the markets going in these precarious conditions. The country's Nikkei Manufacturing PMI rose to 53.1 in June as against 51.2 in May, registering its fastest speed in 2018. The manufacturing activity got a boost from the robust domestic and international demand for the eighth consecutive month. The services PMI also surged at the fastest speed to 52.6 from 49.6 in May. However, the surge in inflation amid the bounce-back in crude prices and higher food prices would bring some more downside to the markets. Now all eyes are on corporate earnings, set to kick-off with TCS and IndusInd Bank results on July 10. The stock-specific moves would happen in dollar dominated sectors such as IT and pharma, which may post better earnings. Some revival may once again bring in foreign inflows into the country.

The markets are expected to remain more or less in consolidation mode on a broader time frame, while remaining volatile on a daily basis till the Lok Sabha elections. Prior to that, the precursors to the finale would be the state elections. What investors can do is to restructure their portfolios by exiting the stocks that are expected to go further downside, average the bottomed out stocks or sit on the losses of the consolidating stocks.



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