Editorial

The month of October usually brings some cheer in the Indian stock markets ahead of the festive seasons of Dussehra and Diwali. Leave apart the cheer or the consolidation, this time around, the markets have witnessed exodus of the market participants, majorly the FIIs. The FIIs have been net sellers throughout October, with net sales of Rs 14097.50 crore, while the DIIs have tried mitigating the sell-off with purchases of Rs 12325.98 crore. The rupee is making new lows almost every day and heading towards 75 to a dollar, which may be followed by 77, and the Indian bond yields may hardened further amid the US rates hitting highest in the last seven years. The crude oil prices too are heading towards their 2014 levels, post the sanctions on Iran. In case the sanctions are not lifted but if the supply is augmented from other sources, we may see some relief in the oil prices. 

As against Fed's stance, the RBI, which was expected to hike rates, surprisingly maintained status quo this time, but cued one hike before the year-end. All-in-all, the concerns about the NBFCs and banks may be short-lived and oil prices too may see some consolidation towards the downside in the coming sessions. The biggest threat for now is the economic boom in the US, which may last for couple of quarters, followed by our very own budget and general elections. 

The elections in the remaining five states of Chhattisgarh, Rajasthan, Telangana, Mizoram and MP would be held from November 12 to December 7, followed by vote counting on December 11. The same would direct the markets in the remaining months of 2018, these state elections being a run-up to the general elections. Despite an expected BJP win, the elections are definitely not going to be easy for the BJP considering some populist as well as harsh decisions by Modi, cleaning of NBFCs and banks and the catastrophic events prevailing in the markets. 

But before that, we have earnings season starting off from the upcoming week. Markets have become vulnerable from both earnings and valuation terms. First and foremost, the rupee depreciation along with rising crude prices have dampened the import-oriented companies on account of pressure on their bottomline numbers. Further, the not-so-impressive auto sales numbers due to below normal monsoon, high interest rates and high fuel costs could lead to earnings de-growth in auto and ancillaries sectors. Further, the lenders under prompt corrective action (PCA) by the RBI and the mergers in the offing may drag the earnings from public sector banks and NBFCs. The cement makers too have hinted at a lull in sales as the revised axle load norms may impact freight costs and the order inflow guidance amid general elections would also be looked at. As for FMCG, the poor demand from the predominately rural customers may impact earnings. Metals continue to look pressurised with ongoing trade war between the US and China. Further, organised power players doubt that the rise in spot electricity prices would benefit them. New projects and inventory levels would be keenly watched by the investors. 

Considering all the above factors, major Indian indices are striving to sustain above their deciding support levels and may see some more downside pressure if the levels are breached. Hence, any upside movement can be considered as short-covering and not to be mistaken as fresh buying (upside reversal) for now. Markets are okay for intra-day traders considering confirmed direction of the indices. However, positional traders can avoid entering for now as the chances of hitting stop losses would be more. Investors can initiate buying on dips now but hold back the temptation of averaging as there are higher chances of getting some more discounts.