Market Direction Hinges On Govt Measures To Revive Economy
Markets players were caught by a pleasant surprise by scintillating rally during the latter part of the last week as the markets rose from the ashes like a phoenix. This action is a good illustration of something that Doug Kass says so often, which is that the market has no memory from day-to-day. The trade war worries and the concerns about slowing economic growth have totally vanished. The sentiments on the D-street turned bullish after reports suggested that the government may restructure the budget proposal of the super-rich tax surcharge on FPIs and the Centre may announce set of measure to overturn the economic downturn shackling the country's economy at present. The bulls breathed a sigh of relief and went on a long weekend with a smile. A lot had happened during that break in the global markets, which gave the bulls restless nights as markets around the globe witnessed a strong sell-off after the US President Donald Trump said he was not ready to make a deal with China and said it would be fine if talks scheduled for September were cancelled. However, in the domestic arena there were some remarkable announcements being made from the crown jewel of the India stock market, i.e. Reliance Industries. The company in its 42nd Annual General Meeting made some big announcements, viz., Saudi's Aramco has signed a letter of intent for a proposed investment in RIL’s oil to chemical division and this would be one of the largest foreign investments ever made in India and Reliance aims to be a zero net debt company within the next 18 months. We believe the stock is likely to be a decent wealth builder with a long term perspective and is a compelling one to buy on dips. The bullish gumption and determination of the past week took an abrupt end as the index recorded steepest fall in the month of August on Tuesday. The fall would have been even nastier had Reliance Industries not stood out with gains of over 9 per cent.
The dawn of Wednesday brought cheerful news for the bulls as the Wall Street rallied after the US trade representative announced a delay in new tariffs on several categories of Chinese made consumer goods until December 15.
The earnings season, where a majority of companies have reported their earnings for the quarter ended June, has so far been a disappointing one, though few stocks have managed to beat the market expectations. However, the commentaries from the managements have not been encouraging ones. India’s biggest lenders, FMCG players and automakers have all sounded warning bells over the slower growth in demand and consumption. In an atmosphere of ever-increasing vocal concerns over an economic slowdown, Prime Minister Narendra Modi in his recent interview said that the government was committed to fulfilling its five-year vision of investment-led growth targeting Rs 100 trillion and made his intention clear of making India the most preferred investment destination and a better place to do business. Also, the Prime Minister commented on the auto industry, which has been one of the most high profile casualties of the slowdown, stating that the slowdown impacting the automobile sector was temporary and that the transition to electric vehicles was not a cause of worry.
In the coming days, there are no major announcements on the domestic economic front. Hence, at this point of time, the market participants might be wondering what would happen next? We are of the view that the Nifty will continue to trade in the broad range of 10,800-11,180 in the near term in the backdrop of weak domestic sentiments given the ongoing economic slowdown. However, the government may pull out its ace in the form of stimulus package for industries, which may include a slew of financial measures ranging from tax cuts, subsidies and other incentives. This will provide the much-needed impetus to the bulls and we might have a surprise rally on the cards.
