Markets have a history of being extremely volatile in the expiry week and it’s not going to be different this time
The stock market was in a bull grip this week, with the Nifty closing up 3.37 per cent at 8,225. This could be attributed to a better-than-expected start to the monsoon season, coupled with the US Federal Reserve maintaining a dovish stand.
Higher-than-expected IIP data for April and a stable inflation rate also acted as catalysts for the Indian market. Pessimism prevailing in the previous week resulted in short covering by the bears. The oil and gas sector was among the key drivers, with Reliance Industries leading the pack.
The rupee staged a spirited bounceback after threatening to break the 64.50 rupees per dollar barrier, but FII selling continued relentlessly with over $400 million in net sales during the week. Trade deficit for May was at a three-month low, but export data suggests manufacturing for exports is yet to pick up.
Oil prices continue to harden, which could be a cause of worry going ahead. Retail prices of petrol were revised upwards, but there was a respite for diesel consumers.
The Narendra Modi government’s renewed focus on housing for all by 2022 led to a rally in the housing finance sector, but it could be a temporary one. Real estate players continue to reel under softer demand from end users.
The Cairn-Vedanta merger was on the expected lines, but with an added sweetener for Cairn shareholders in the form of preference shares. After the initial thumbs up, Cairn shares slumped back to pre-announcement levels.
Manpasand Beverages IPO opens next week at steep valuations. It is avoidable given the crowded market for fruit-based beverages in India.
The week ahead would be full of action with the focus on whether the Nifty can hold recent gains ahead of derivatives contract expiry. Monsoon concerns seem to be behind us for the time being, unless rains weaken considerably in the next few days, but remember that the spread is more important than the quantum of rainfall.
Watch out for developments in Greece. Euro zone leaders are scheduled to hold an emergency summit on Monday to discuss a bailout programme. Grexit may not be a surprise, but the actual event could lead to a reaction.
Political heat over the Lalit Modi controversy could cloud the monsoon session of parliament starting next month, unless the government is able to resolve it. If not, it could derail key reform bills such as goods and services tax (GST) and land acquisition. The ground-level situation remains difficult and consequently corporate earnings are not expected to improve till the third quarter.
I have been cautious on the markets, although I had not ruled out a temporary Nifty bounceback to 8,200. But it’s been stronger than I expected and it’s possible that we could see a further leg of this rally. The sharp fall in Chinese markets could be a sentiment booster for India, but one needs to see whether it results in the reversal of FII outflows seen in the last few months.
Markets have a history of being extremely volatile in the expiry week and it’s not going to be different this time. The markets have turned in favour of the bulls for the time being, but I would review my outlook only if the Nifty closes decisively above 8,400. Till then, I would continue to suggest that investors encash this surprise move by increasing the cash in their portfolio, but momentum traders should ride the rally with a tight stop loss.