Stay tuned, but be cautious of the June Swoon!
Lately, the Indian stocks markets are going through a roller-coaster ride with bits and pieces of good and bad news and events hitting the street every now and then. Indian stock markets somehow survived the negative global market trend and bounced back on the back of correction in the crude oil prices and recovery in the rupee against the dollar. Indian benchmark indices witnessed a relief rally breaking their respective psychological resistance levels. However, the market breadth remained subdued amid prevailing weakness in the mid-cap and small-cap segments with fund houses reducing their exposure to these stocks.
Indian markets saw fresh buying after RBI announced interest rate hike, which seemed to have been factored into the prices. However, the markets witnessed cautious correction yet again ahead of Trump-Kim meet and the US Fed’s second consecutive interest rate hike. This may lead to some more foreign outflow in the near term in the Indian equities. The June FII net investment turned negative after a positive start at Rs 258.19 crore in June till date. The FIIs have been net sellers to the tune of Rs 1472.81 crore YTD. The DIIs are cushioning the FII outflow by buying in smaller quantities. The net amount invested by the DIIs in June till date and in 2018 stands at Rs 5346.58 crore and Rs 52873.51crore, respectively.
India's emerging economy is not significantly dependent on exports as it largely consumes what is produces. Further, exports hold 11% weightage in the GDP and hence analysts maintain their positive view on GDP for the next 5 years. Hence, markets have been and will keep on meeting the global trade war fears. The icing on the cake is the recent denuclearisation of the Korean peninsula, which might result in lifting of sanctions levied against North Korea.
Coming back to the inland events, after relatively positive auto sales numbers and relatively weak manufacturing and service PMI, the next in line was IIP. The IIP rose 4.9% in April as compared with the corresponding month of previous year and 4.3% in FY18., which indicated pick-up in manufacturing. What came in as a setback was the country’s retail inflation, which grew at 4.87% in May as compared to 4.58% in April, with the core inflation rising to 6.2% from 5.8%. The inflation numbers justify RBI’s hawkish stance on interest rates. The WPI too hit 14-month high of 4.43% in May on account of the flare up in crude oil prices. The country’s gross bank credit posted its third double digit growth since December 2014 at 10.7% in April. However, the growth rate is lower as the farm loan waiver, NPAs, banking frauds and affordable housing are refraining the credit growth, yet NBFCs are keeping the growth intact.
The outlook remains cautious as some of the states would go to polls this year, followed by the general elections due next year. For now, the upcoming corporate earnings report and monsoon will drive the markets in the coming days. The direction is still not clear, but the defensive sectors have started gaining ground, and specifically, the companies with positive numbers in the recent past. Stay tuned, but be cautious of the June 'Swoon'.