Beware Of Wild Stock-Specific Moves Triggered By Corporate Results
Confronting the global trade war fears, Indian stock market bulls charged against the bears, making gradual higher highs in the recent past. This time, the US President Donald Trump did not limit himself to the tweets, instead he went on the offensive in the US trade war against China, listing additional 200 billion USD worth products for tariff enforcement by September 2018. This one-shot blow, after the duo had imposed tariff worth USD 34 billion against each other, kept the markets bewildered. Further, the Brent crude bounced back from its multiple support zone to 79.70 levels after the unrewarding OPEC meeting and lower US stock inventories too kept the global markets on the edge. However, the favourable macroeconomic numbers could counterbalance these fears, catalyst being the auto sales growth and the robust manufacturing and service PMI numbers. A good beginning to the Q1 FY19 corporate earnings further aided Indian benchmark indices to breach their crucial resistances and head towards the peak levels. Furthermore, the broader markets too seemed to have bottomed out after consolidating at their provisional lows.
The earnings picture in India is getting better and analysts are expecting nearly 23% and 20% average earnings growth for Sensex and Nifty constituents, respectively, with more than 75% of the companies expected to post growth. The commodity sector revival with MSP hike, cement sector growth led by 'Housing for All' and the government spending on infrastructure, the automobile boost led by pass-through prices to ultimate consumers and rejuvenation of the energy, healthcare and consumer sectors amid higher crude prices and higher dollar value are expected to give a positive push to the Indian markets. However, the banks, excluding private sector banks, and metals, which form a crucial part of the Indian stock markets, are expected to post subdued numbers. Nevertheless, despite the negative geopolitical and economic developments, rupee depreciation to all-time low levels and the tightening of liquidity, the RBI would be prompted to raise economic outlook and thereby raise the GDP estimate to 7.4% as against 6.6% last year. Now, the impact of IIP and CPI inflation and the progress of monsoons in the country would decide the fate of the markets in the near term. As it is, rising inflation and the fiscal deficit would prompt RBI to keep raising interest rates, thereby creating bottleneck to the overall growth.
As mentioned above, Indian benchmark indices have duly surpassed their crucial levels on the upside and would continue the momentum going forward, unless the negative events trigger a market downslide. Apart from the assembly elections in Mizoram in Dec. 2018, the three key state elections in Rajasthan, Madhya Pradesh and Chhatisgarh due to be held in January 2019 before the Lok Sabha elections, will be the key pointers to the political scenario next year.
Till then, keep invested in sector-specific frontilners and start averaging the badly beaten mid-cap and smallcap stocks which have recently bottomed out. Traders need to stay cautious about the extreme intra-day moves amid corporate earnings, while positional traders can play for single digit profit growth, strictly maintaining their stop losses. Indicators and oscillators have directed northward movement, unless Trump tweaks the Indian bulls’ ears--which he has already started--while bashing the pharma companies on unnecessary price hikes of drugs.
