Market gets ready for India Inc’s most unexpected quarter ahead

The domestic equity market bounced back during the week gone by on the back of positive global clues, especially those emanating from the US. The massive tax rate cuts proposed on corporate earnings from 35 per cent to 20 per cent have raised hope of accelerated earnings growth in the US economy, the repercussions of which were felt on the rupee.

By the close of the week, the rupee stabilised below 65.50 from a high of 66.13. Considering macro-economic factors, it seems more likely that the spree of rupee depreciation against the US dollar has started and will continue for a long time. This will bring respite to the export-oriented sectors such as IT, pharma, textiles and jewellery exporters.

Relenting to public backlash due to high diesel and petrol prices, the government has finally reduced the fuel prices by Rs 2. Ironically, the diesel price is current hovering at an all-time high even though crude prices stood around the $60 mark, which is way below their peak price of $130 a barrel seen about a decade ago. This anomaly between all-time high diesel prices and low crude oil prices has caused a lot of anger among the public, forcing the government to respond positively at last.

Events of the week
In its bimonthly money policy review, RBI refrained from reducing interest rates despite the slowdown in the economy due to teething troubles with GST implementation, in addition to other factors such as lower coal and crude oil production and emerging inflationary tendencies due to the implementation of 7th Pay Commission award, which were all factored in before arriving at a neutral policy stance.

As per the WTO report, developed economies have grown faster on the back of low to zero interest rates. That being the case, RBI ought to have considered such contemporary evidences in favour of reducing interest rates, thereby reducing the cost of money to kick start the lending wheel in the economy.

Technical outlook
The market has bounced from the oversold zone after forming a firm double bottom. Such base formation is critical. If, however, it is breached, it will start a deeper downward spiral.



But the way, the market has bounced off the bottom. It seems the market is getting into a trading range with the Nifty50’s upper end of the resistance range at 10,170 and the lower end at 9,700. The market is in the neutral zone currently. And as such, no trading opportunity exists when considered form a risk-reward point of view.

Expectations from coming week
The domestic equity market seems to be gearing up for the quarterly numbers to be announced from the beginning of next week. This quarter would be the toughest and most unexpected one, wherein no one will be able to estimate the quarterly scorecard precisely. The market will, therefore, be reactive in nature, which will result in huge volatility in stock prices. That being so, the premium for options would be high compared with that in the past.

The government has woken up to the reality: difficulties faced by small businessmen are proposed to be taken up in the GST Council meeting and, hopefully, the govt will be proactive in reducing the systemic and procedural difficulties for them.

The IPO of GIC Re, one of the biggest issues pegged at approximately Rs 11,000 crore, will hit the market during the week. Being a monopoly business, the IPO should be subscribed to, given that the issue is priced fairly. The stock must be held with a long-term perspective for superior returns. In the near term, quarterly numbers will provide clues for market direction.

The Nifty50 closed the week at 9,979, up 1.95 per cent.