By Ambareesh Baliga
Consolidation continued with markets still hovering in a range and the Nifty gaining 0.7 percent during the week to close at 9,174. However, action was mostly focused on mid- and small-cap stocks. The rupee rose 2.8 percent in March, making it the best performing Asian currency in the past month. Its gain of 5 percent during the January-March period is the biggest for any quarter since Q3 CY12 as FIIs poured in money after as a thumping win for Prime Minister Narendra Modi’s BJP in state elections.
The Lok Sabha cleared four bills related to Goods and Services Tax (GST), setting the stage for its rollout from July. The GST Council headed by Finance Minister Arun Jaitley tentatively approved four sets of rules for the new indirect tax regime in its 13th meeting on Friday. Of the total nine sets of GST Rules, five were approved by the council earlier. The final amended draft rules and rates for individual items will be taken up at the next meeting on May 18-19 for final approval.
Aviation stocks were in action in the past week, mainly led by SpiceJet which gained 9 percent, after 45 routes under the regional connectivity scheme were allocated to various airlines. The fall in crude prices and a strong rupee were indicative of lower aviation fuel prices, which is the biggest single cost for airlines.
Maruti registered a 8.1 percent year-on-year growth in vehicle sales for the month of March to 1,39,763 units. While domestic sales rose 7.7 percent, exports jumped 12.6 percent to 11,764 units during the month. With this, the company has clocked its highest ever total sales for a fiscal year. It sold 1.57 million units in FY17, around 9.8 percent higher than the previous year. Tata Motors achieved 8 percent higher sales in March, while Nissan India, Honda and Ford achieved double-digit growth.
Advance tax filed by India's top 100 companies for the January-March period rose 9 percent compared to the year before. On a quarterly basis, the advance tax paid by these companies rose 6 percent. Reliance Industries saw a sharp drop in its tax figures - it paid 14 billion rupees in Q4 compared to 22.15 billion rupees during the same period last year. Meanwhile, SBI paid 16 billion rupees during the quarter as against 7 billion rupees a year ago.
Private weather forecaster Skymet said India's monsoon rains are likely to be below normal this year, but official forecaster IMD seems to be confident about the prospect of a good monsoon.
On the macro data front, core industries output for February grew by 1 percent, the weakest growth in 15 months, suggesting overall growth slowdown of the segment in Q4. Cement production registered a contraction of 15.8 percent in February, the third back-to-back negative growth since December (post demonetization). Cement production has turned into net contraction mode on YTD basis to -0.7 percent. This again puts a question mark on India’s GDP growth figures and reconfirms my view that Q4 earnings could surprise on the downside. Fiscal deficit in the first 11 months to February reached 113.4 percent of the government’s revised target for 2016-17.
For the coming week, the RBI policy review is a key event which is likely to determine the near-term trend. The central bank is likely to maintain status quo despite March inflation numbers being below targeted levels. At its last meeting, the RBI surprised everyone by changing its stance to neutral from accommodative.
Automobile companies will be in focus at the stock markets based on their March sales volume. This will be an interesting figure especially in light of the ban on sale of BS-III vehicles after April 1. Two-wheeler companies have offered high discounts to liquidate inventories so they may report better sales numbers but margins would suffer.
PSU OMCs will also be in focus as petrol prices were cut by 3.77 rupees a litre and diesel by 2.91 rupees a litre. The current level of international crude oil prices and rupee-dollar exchange rate warranted this decrease.
On the macro front, manufacturing and services PMI for the month of March is due on Monday and Thursday respectively. Globally, the U.S. Fed’s March meeting minutes where it raised rates by 25 bps will be released on Wednesday. The Nikkei Japan Manufacturing PMI, Markit euro zone Manufacturing PMI and U.S. Markit Manufacturing PMI for the month of March 2017 will be unveiled on Monday.
The string of economic data coming out of India continues to confirm that all is not well with the economy, but sentiment and liquidity seems to be holding the markets up. Stocks can continue to defy gravity for a while longer but corporate earnings speak for themselves. I would continue to advise profit-booking.
(Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.)