Market Outlook

Market last week

Market took a breath of fresh air as geopolitical tension eased, while announcement of general election dates and opinion polls favoring the ruling party further propelled the benchmark indices to a six-month high. Additionally, global liquidity conditions have eased in the expectation of more dovish stance by FED which is leading to shift of funds to high yield emerging markets.

The rally was broad based and mid and small caps witnessed strong buying interest. This was largely due to change in investor’s sentiment towards high quality mid and small caps which is currently available at attractive valuation. Among the sectoral indices, banking and finance led from the front with the gain of ~6%, due to RBI’s new mechanism to pump additional liquidity of USD 5 billion through foreign exchange swap from banks is likely to boost loan growth. Bank Nifty hit record high with the possibility that RBI may consider a rate cut on back of moderation in inflation and slowdown in growth. On the other hand, global cues were mixed, due to drop in Chinese export, Brexit worries, trade tensions and renewed concern on global growth.

Market this week

Currently market focusing on domestic businesses in expectation of improvement in future outlook with revival in sectors like cement, infra, consumption and bank from FY20. Probability of a stable government formation at the center and the inflation being continuously below the RBI’s target has increased the scope for rate cut in the near term. Minor profit booking is expected given sharp run-up in domestic markets and global factors. However, downside will be capped as emerging markets like India is likely to benefit from strong liquidity and reversal in FII flows. For the week ahead, FED interest rate decision is the key event, consensus expects a pause.

Posted: March 18, 2019


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