Earnings, Government Stimulus To Dominate Market Focus

After hitting the bull’s-eye with a sharp drop in corporate tax rate, the government has released yet another arrow to tackle the economic slowdown. Amidst the festive season, the government has announced its decision to hike dearness allowance (DA) by 5 per cent to 17 per cent, a move that is likely to benefit about 50 lakh government employees and about 62 lakh pensioners. This is the highest ever increase in DA in one go by the central government. This move is expected to add impetus to the festive demand. Moreover, the DA announcement was just what the doctor ordered as the bulls which were down and out, were looking for some shots. The markets gave salute to the bold move by the government and the indices surged over one and half percent in a single trading session on Wednesday. What backed the bulls further was the report from the Centre for Monitoring Indian Economy (CMIE) stating that the unemployment rate fell from 8.3 per cent in August to 7.2 per cent in September, led by substantial pick up in new jobs in rural areas due to improved monsoon. This development is encouraging given that the unemployment rate has been a pain in the neck for a long time now.

On the global front, the high drama of trade talks continues which have resulted into a roller coaster ride on the Wall Street. The high-level trade talk which is set to begin on Thursday and the market participants worldwide will spy with one big eye for any grand resolution, which will help to lift the investors’ sentiments.

Tensions of trade war and concerns of economic slowdown have already taken a toll on the domestic markets with the benchmark indices registering negative return since July till date. Given the economic uncertainty, investors might believe that it is better to stay off the markets until the dust settles. However, in the last three months, despite ups and down, some of the selected stocks have added glory to the portfolio of investors and hence, it is quite necessary to select the right stock and enter it at the right time. As the festive season has already kicked off, consumer spending power is expected to have inflated during this period. We believe this is the right time to look into stocks of financial companies which offer loans for consumer durable and also, stocks from retail and paint industry. Meanwhile, there are some reports that indicate that the festive season will be muted this year and thus, will fail to revive consumer spending. However, we believe that several factors like soft interest rates, a better and widespread monsoon and also the attractive EMI offers provided by several finance companies will drive demand in the coming months, which, in turn, may push up the sales to match the levels seen in previous years.

By the time you read this editorial piece, the first big corporate results will be out with the IT bellwether TCS and private banking major IndusInd Bank reporting their July-September quarter earnings. With the picture emerging from the Q2 earnings, the markets will get a fair idea about how many companies are poised to benefit from the recent corporate tax cut. The topline will give us an idea about the slowdown effect, while the bottomline will help us to check if there is any improvement due to the tax cut. Apart from this, asset quality of the banking and financial stocks would be focal point of the current earning seasons. The beginning of the current earnings season may not be greeted with much enthusiasm; however, the financial performance of the Nifty companies is very crucial for the markets. Any pleasant surprise in the quarter results would be positive for the markets and it may trigger FPI buying. In the coming days, stock-specific action will rule the market. Technically, the 50-share index has a significant resistance at the level of 11,400 and a strong breakout above this barrier on the weekly basis would open gates for further upside. Also, we believe that the last trump card from the government (probably a personal tax cut) would soon be out, providing a major boost tot he subdued consumer spending. Till then, stay cautious !