Editorial
Stock Markets Vulnerable, Stick To Bottom-Up Approach
Indian stock markets are in the midst of domestic events provoking the bulls and the bears to slug it out wildly, thereby keeping the investors baffled. The FIIs maintained sell-off in the markets and have turned net sellers to the tune of Rs 19043 crore in October till date, while the DIIs are extending support with Rs 16856 crore worth of investment. The country posted its inflation data last week, wherein the CPI inflation rose to 3.77% as against 3.69% in the previous month, but within the limit of RBI’s medium-term target of 4% on account of a check in the food prices that account for more than half of the retail basket. Even WPI inflation came in at 5.13% as against 4.53% in the previous month and 2.6% in the same month last year amid higher fuel prices. However, the below normal monsoon, coupled with higher transport costs due to higher crude oil prices may keep the food prices elevated and, thereby, the lingering fear of higher inflation in the coming months. The RBI, which maintained a neutral stance in the last policy meet, might have to resort to the policy rate hike before the year-end. Secondly, the IIP numbers too hit their 3-month low of 4.3% in August due to downturn in mining and weak offtake of capital goods.
The second quarter results have kicked-off and IT giants TCS and Infosys have posted better-than-expected earnings, followed by HUL. IndusInd Bank and Hero Motocorp, however, posted lower-than-expected numbers. Indian market bulls have grabbed the opportunity of strong sales so far and, going forward, the results of the index stocks will direct the market movements. Even robust earnings report from the US blue chips resulted in a bounce-back in the major indices, taking a breather from the prevailing geopolitical and trade tensions.
The rupee has halted after bouncing back from its all-time lows of 74.49, while crude oil prices too showed some consolidation after correcting from the recent high of USD 86.74/barrel. However, the escalating tensions between Saudi Arabia and the US may again pull the prices up. Moreover, the sanctions and retaliatory measures could help it hit USD100/barrel in the medium term, which looks uncertain for now amid higher output and weakening demand, provided Saudi Arabia continues to produce.
We still feel that the earnings have brought some short-covering in the markets, which is expected to give a relief rally in the sectoral indices with positive Q2 numbers. These stocks could be considered for averaging at the current levels. However, the bounceback in major indices pulled up by the stock-specific moves need not be mistaken as fresh buying in the overall markets, as the indices may turn back anytime in the near future considering the lack of positive trigger. In the midst of the corporate earnings, we have five state elections and the polls are going to be critical for all the parties and the markets would be vulnerable to the outcome of these polls. We also have the last monetary policy reviews for 2018, where the chances of rate hikes by both Fed and the RBI are more and the markets would react to that too. Considering all this, we suggest investors to stick to the bottom-up approach and ignore the market moves for now.
(Subscriber's can send their feedback and queries on technicals portfolio guide to fnieditor@dsij.in)