Consolidation At Higher Levels Likely In The Near Term
Paul Coelho, the renowned novelist, had famously said, ‘When you want something, all the universe conspires in helping you to achieve it!’ Well, with the whole country praying for the safe return of IAF pilot Wing Commander Abhinandan Vardhaman from Pakistan and India’s astute diplomacy, India got its brave son back home. This ‘gesture of peace’ by Pakistani PM clearly signalled that India and Pakistan were likely to step back from a deeper conflict. This positive development set the stage for the bulls and provided an ideal start for the month of March. The benchmark indices have witnessed a decent upmove since then, while the broader indices witnessed a sharp bounce as they moved into the top gear and dominated Dalal Street. Further, adding to the optimism on the D-Street was the rally in the rupee, driven by a decline in the price of crude oil as the US crude oil supplies swelled and the commercial fuel inventories increased. Also, the consistent FII buying into Indian equities in the past two weeks has also had a salutary impact on the Indian rupee.
While the bulls were marching with strong momentum, there were a couple of roadblocks which they shrugged off. These roadblocks came in the form of India’s GDP growth falling to 6.6 per cent in Q3, the slowest in five quarters, and the slowdown in the growth of eight core sectors to 1.8 per cent in January as well the mixed auto sales figures for February. Also, the Trump administration’s decided to withdraw Generalized System of Preferences (GSP) benefits to India.
Meanwhile, on the global front, the start of the year rally for the US markets has lost some steam as there were new reasons to be gloomy. To begin with, the US-North Korea summit came to an abrupt end as talks between the leaders of both nations broke down in the Vietnamese capital of Hanoi. Also, the Organization for Economic Cooperation and Development (OECD) again cut its global growth rate for 2019. Furthermore, the US trade deficit jumped to 10-year high in 2018 and lack of further developments on the US-China trade negotiations. In other news, Federal Reserve released its Beige Book; the report showed that the pace of growth in the economy was ‘slight-to-moderate’ in 10 of the 12 districts, while the other two indicated ‘flat economic conditions’. Meanwhile, China set the economic growth target for 2019 in the range of 6 to 6.5 per cent. Chinese Premier Li Keqiang, at the opening of the annual session of China’s legislature, outlined plans to support the economy, including an increase in infrastructure spending and new tax cuts.
Considering the upmove over the last few sessions in the benchmark indices and the sprint in the broader indices, the possibilities exist that the indices may face some consolidation at higher levels in the near term. Domestically, on the macro front, all eyes will be on key data like IIP, CPI, WPI and India’s current account deficit. On the global front, the development on US-China trade front, progress on Brexit and movement of crude oil prices and currency would be the focus of market participants. In the last week or so, since the broader indices have outclassed the frontline indices, we would recommend our readers to stick with quality and fundamentally sound companies and avoid chasing down the momentum blindly. As we always know, the only free cheese is in the mousetrap.
