By Ambareesh Baliga
The Nifty ended the week up 1.2 percent at 9,401 supported by a rally in consumption stocks. An upbeat monsoon forecast and decent fourth-quarter earnings so far led to benchmark indexes touching record highs during the week. The liquidity inflow remained strong and the absence of any negative news on the global front also helped sentiment. The rupee traded in a narrow range of 64.30 and 64.62 against the dollar.
Eicher Motors was the top gainer, up about 13 percent followed by Bharti Airtel, Aurobindo Pharma, Tech Mahindra and Hero MotoCorp. Yes Bank was the top loser in the index pack, hitting a seven-week low after it was pulled up by the Reserve Bank of India (RBI) for under-reporting NPAs to the extent of 40 billion rupees.
Some disappointing earnings from public sector banks led to overall weakness in the banking space, with the exception of Kotak Bank which gained 5 percent. The banking index has been outperforming YTD on the back of various measures announced by the RBI for managing NPAs.
Crude oil prices registered a weekly gain of around 4 percent after data from the United States showed a 5.25-million barrel stockpile drop last week and OPEC countries are expected to extend production curbs for another six months when the group meets on May 25.
The street shunned the old adage of 'sell in May and go away' as an upbeat forecast from the India Meteorological Department (IMD) cheered the markets. It said that India is likely to receive higher monsoon rainfall than previously forecast as concerns over the El Nino weather condition eased, raising prospects of higher farm and economic growth.
During the week, the RBI initiated prompt corrective action against UCO Bank and IDBI Bank for high bad loans and negative RoA. The move will place various restrictions, including fresh loans and dividend distribution. The RBI had announced a framework allowing the regulator to push banks to wind up or merge with other lenders.
Meanwhile, the government imposed anti-dumping duties on 47 steel products. Between April 2016 and January 2017, India's steel imports fell 38 percent year-on-year primarily due to the slew of protection measures announced.
The government has come out with a green car plan that prioritizes electric vehicles and aims to switch to electric passenger vehicles by 2032. It has recommended a number of sops for electric vehicles. This will help India in cutting its oil import bill to half by 2030 and reduce emissions.
Along with auto majors, auto component manufacturers will also be affected as fewer components are required in an electric vehicle. I also believe that the consumer shift to electric vehicles would be faster than what most of us would envisage. The tipping point could be as early as 2022. One has to see how fast the auto majors adapt to new technology, but the worst affected would be the oil majors and oil marketing companies despite diesel consumption continuing for a while longer. The shift worldwide may also lead to lower oil prices, resulting in lower aviation fuel, LPG, diesel prices.
Meanwhile, CPI inflation fell to an all-time low of 2.99 percent in April, compared to 3.89 percent in March mainly due to a sharp fall in the prices of vegetables and pulses. The government released a new base-year series for WPI inflation and IIP. Using the new base, WPI eased sharply to 3.85 percent in April compared to 5.29 percent in March. The market has feared tighter monetary policy from the RBI especially after a shift in its stance from accommodative to neutral. With inflation falling, the chance of a rate hike in the medium term remains limited.
IIP rose 2.7 percent in March compared to 1.9 percent in February (lower than the 5.5 percent seen in March 2016), according to the revised IIP data with the base year as 2011-12 that adjusts the basket of goods to reflect changes in the economy. For the year 2016-17, IIP rose 5 percent under the new series.
On Friday, U.S. data revealed that CPI inflation rose 0.2 percent. Consequently, the odds of a June rate rise diminished and the dollar weakened across the board.
Major corporates expected to declare their results next week include Colgate, Bata, Tata Steel, PNB, HUL, JSW Steel, Bajaj Auto, BoB, Grasim, SBI and Tata Power. The banking sector is expected to remain in focus as key results from the sector will keep the markets busy.
The Nifty has managed to break out of its trading range of 9,200-9,350 to move beyond 9,400 levels, though the rally is not as strong. However, with optimism on the monsoon front and with not many negative surprises from earnings, the current phase of the rally can extend. Although I continue to believe that the markets are over-valued and a sudden crash-landing is a possibility, the liquidity and ‘TINA’ (There is No Alternative) factor could extend the rally to 9,600.