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OP Thomas: Indian stock markets fail to sustain rally
June 06, 2016
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Exclusive to The Gulf Today

Last week, the markets failed to sustain the rally as profit-taking and absence of triggers dampened sentiments. For one, the US economy isn’t doing well as much as to warrant a Fed rate hike mid June and second, the Indian banking sector is still reeling under a huge pile up of non-performing assets even though the latest GDP data shows a spurt from 7.2 per cent to 7.9 per cent in the last quarter of fiscal 2016 from the previous quarter.

As for US, last Friday’s job data showed the economy added only 38,000 jobs in May as against the estimated 164,000. Many analysts are now in consensus that the growth is on a slow-track and that the Fed was unlikely to hike interest rates in its June 14-15 review. Though the unemployment data showed a drop to 4.7 per cent, they held the view it was largely due to people opting out and that there weren’t any signs in consumer spending showing a marked rise.

This implies that foreign institutional funds would continue to seek opportunities in emerging markets and reduces the chances of any imminent outflows to US. Last week, foreign institutional investors pumped in Rs 29.40 billion in the Indian cash equity segment while domestic institutional investors remained net sellers to the tune of Rs 4.24 billion.

The latest GDP data at home, however, does not take into account the declining capital formation that has decelerated in the fourth quarter to 29.4 per cent from 32-odd percent at the end of the first quarter. Secondly, the government’s chief statistician in a recent report admitted to `discrepancies’ in the GDP data and said efforts were on to minimise them.

The facts are the economy is indeed on a growth trajectory and there are select sectors where consumer spending has been on the rise. Long gestation projects in infrastructure has been stalled and one of the major reasons for the bulging non-performing assets of banks. Going by the latest data released by rating agency, Care, these NPAs as of FY 16 stood at nearly Rs 6 trillion from about Rs 3.5 trillion they were at the end of September 2015.

Under the circumstances, it is difficult to fathom why PSU banks continue to hog the limelight. The markets, last week, however, was quick to discount the GDP numbers and over the week shed most gains.

The S&P BSE Sensex by the end of the week gained 189.43 points or 0.71 per cent at 26,843.03 while the Nifty-50 index rose 64.15 points or 0.79 per cent at 8,220.80.

For the week ahead, the markets will look for triggers like the monsoon which is predicted to hit country by Thursday. The country has been hit with two years of consistent drought and food-grain production is estimated at a two-year low of 253 mt. According to the weather bureau, the monsoon is expected to be above normal this time, which means one could expect some relief in inflation rate and subsequently an easing trend in domestic interest rates. Tuesday, the RBI will announce its bi-monthly economic review. Bankers, however, do not expect the RBI to lower rates from the present 6.5 per cent, but most say it could occur later and after the assessment of monsoon.

Nifty, for the week, is in the overbought zone and needs to pierce the 8350 levels for an upward move to 8500. On the downside, Nifty is supported around 8000 level.



THE AUTHOR

IS A BUSINESS ANALYST COVERING

INDIAN MARKETS, BANKING AND ECONOMY

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