The trading adage “Sell in May and go away” did not apply to May 2017 as benchmark indexes in India hit record highs and ended the month with gains of 3.4 percent. Upbeat fourth-quarter results and the finalisation of Goods and Services Tax (GST) rates were among the factors that boosted Indian markets.
The Nifty gained 0.6 percent during the week to remain above 9,650 tracking trends in global markets, monthly auto sales numbers and the arrival of monsoon rains. Comments from ratings agency Moody's Investors Services that key India reforms may improve the country's credit profile also aided positive sentiments.
Markets were buoyed by the India Meteorological Department (IMD) statement that conditions are favourable for the advance of the southwest monsoon. Fertiliser stocks and rural stocks gained on the early arrival of monsoon rains.
In a proposal aimed at curbing misuse of participatory notes (P-notes), market regulator SEBI has proposed to tighten rules on P-notes. The 15th meeting of the GST Council finalised the remaining rates and laid the path for its rollout from July 1.
In a major global development, U.S. President Donald Trump announced that the United States will withdraw from the Paris climate accord, stating that the landmark 2015 pact imposed unfair environmental standards on American businesses and workers.
He accused India and other countries of making participation contingent on receiving billions of dollars of foreign aid from developed countries.
With the backdrop of the Paris climate accord, H-1B visa crackdown and the scaling down of U.S. investments in India, the proposed visit of Prime Minister Narendra Modi to the White House later this month will be closely watched.
In stock-specific action, Reliance Communication was in the limelight during the week with the stock down 20 percent after Fitch Ratings warned of a possible default, while Moody’s Investor Services downgraded the company after delayed payments on non-convertible debentures.
The mounting stress in India’s telecom sector with heightened competition and declining profitability has become a cause of concern for bankers as well as the Reserve Bank of India.
Sales figures were mixed for automobile manufacturers for May. Two-wheelers posted a strong recovery (except Bajaj Auto) on the back of the wedding season and inventory build-up as companies ramped up BS IV vehicles production. Passenger vehicle sales disappointed.
ONGC was in the news after the company announced plans that it may acquire the central government's majority stake in HPCL by the end of the financial year. The deal could be valued at $4.5 billion for 51.1 percent of the government’s stake in HPCL.
India’s real GDP growth decelerated to 6.1 percent in the fourth quarter, lower than market estimates of 7.1 percent. Further, real gross value added (GVA) grew 5.6 percent, the slowest pace in three years.
The latest GDP figures suggest that the impact of demonetisation is clearly evident in sectors such as manufacturing, construction, trade and real estate that have seen a sharp deceleration.
Indian factory growth cooled in May as new orders expanded at a modest pace, but manufacturers were able to raise prices slightly, according to a private survey.
The Nikkei Manufacturing Purchasing Managers' Index fell to 51.6 in May from April's 52.5. The eight core infrastructure industries have showed 2.5 percent year-on-year growth in output for April 2017.
The RBI monetary policy review will be unveiled on Wednesday. After disappointing GDP numbers and with the results season out of the way, the RBI’s policy will determine market trends in the near term.
The UK election is also scheduled on June 8 and markets across the globe are expected to react the next day.
The markets have been ignoring negative news and gradually moving higher week after week. Although the “buy on every dip” strategy has been working for some time now, I am afraid that the market is an “emperor without clothes”.
Liquidity along with TINA (There is no other Alternative Asset Class) cannot be the only factors driving these markets much longer.
The destabilising factor could be GST being implemented from July 1 and its effect. We may get overwhelmed by the impact and be forced to react as it could have an effect on earnings for the next two quarters.
(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.)