Domestic Events To Drive Markets Going Forward

 Of late, the Indian stock markets are seen hovering around their peak levels while both bulls and bears appeared to have spent their forces. The January effect was visible in the markets with a bounce back driven by robust auto sales numbers for the month of December. The auto sector witnessed pick-up in car sales, especially with luxury car sales growing at fast­est pace in the last half decade. Further, the positive momentum in the manufacturing and services PMI carried forward the optimism in the markets. Nikkei India manufacturing PMI surged at its fastest pace in the last five years at 54.7 as against 52.6 in the previ­ous month. The surge was led by rise in merchandise exports at 30.5%, plus 6.8% growth in output of eight core sectors. The services PMI too revived at 50.9 after a de-growth in November, which had depicted provi­sional contraction at 48.5. Moreover, the most-hyped macroeconomic number, the GDP, too bounced back to 6.3% in September quarter after a drop to three-year low in June at 5.7%. The FY18 GDP forecasts would be released on Friday. Considering all this, investors’ serenity throughout demonetisation and GST roll-out seemed to have paid off in December 2017. However, some lethargy was witnessed amongst investors concerned about rising crude oil and gold prices. The oil prices hit multi-year high with Brent crude at USD 69.11 per barrel, almost nearing the USD 70-mark, which acts as a major resistance, but if it is breached, the crude oil prices might hit the USD 100-mark. The rising oil prices poses one of the biggest threats to the country’s current account deficit (CAD) and may delay easing of liquidity through interest rate cut by the RBI. Further, the expected interest rate hikes by the Federal Reserve too may bring in some volatility in the global indices. India’s CPI is forecast­ed in the range of 5-5.2% for December 2017 with still higher numbers in 2018. Even gold has hit mul­ti-month high with depreciating dollar. The corporate earnings of major companies are at the doorstep, with TCS and IndusInd Bank being first off the mark. The IT sector may see at least a single digit growth in reve­nue, while banks may report subdued results owing to the fall in bond prices hitting their earnings. Overall, Q3 of FY18 is expected to post positive results amid fresh realisations from increased exports, consumption and higher capital expenditure. Thus, the Q3 outlook would be a crucial driving factor for the markets. Meanwhile, the reforms-oriented Union budget would positively impact the sector-specific announcements. The assembly elections in eight states would also bring in some roller-coaster moves in the markets as these state elections may mirror the election outcome of the Lok Sabha polls in 2019. All-in-all, though the markets are trading at their premium levels, the val­uations still look cheaper than the valuations in 2008 and 2015. Hence, more than global cues, this time it would be the domestic events that would capture mar­ket's attention in the near term. But come what may, domestic funds are expected to continue to pour into the markets.