A fifth straight week of gains resulted in the Nifty crossing the crucial 8,900 mark, with Reliance Industries providing direction for markets. The company’s stock hit a 52-week high after Chairman Mukesh Ambani said its telecom unit Jio will end free data plans for customers starting April 1. The stock had been underperforming for some time due to concerns related to its telecom venture and the huge capex it is undertaking.
The rest of the telecom space saw heavy action too. Idea Cellular gained more than 10 percent after reports indicated that Japan’s Softbank could emerge as a new investor in the proposed Idea-Vodafone combined venture, and Bharti Airtel entered into an agreement to acquire Telenor (India) in seven circles. This acquisition is expected to further bolster its strong spectrum footprint and improve Airtel's 4G network position. The acquisition cost seems to be negligible if one considers the value of the spectrum.
The consolidation in the telecom industry looks set to result in a three-player oligopoly. There have also been rumors that Tata Teleservices is looking to join the proposed merger between Reliance Communications and Aircel.
Meanwhile, the IMF in its latest annual report projected India’s growth to slow to 6.6 percent in FY17 due to the effects of demonetisation. However, it expects only a short-term impact followed by a bounce-back to more than 8 percent growth in the next few years. Tailwinds from a favourable monsoon, low oil prices and continued progress in resolving supply-side bottlenecks, as well as robust consumer confidence will support near-term growth, it said.
However, the IMF was concerned about further deterioration of corporate and public bank balance sheets as well as setbacks in the reform process, including in GST design and implementation, which could weigh on domestic demand-driven growth and undermine sentiment.
Meanwhile, weather forecasters say the El Nino weather conditions may make a comeback, suggesting a negative effect on the Indian monsoon season. With commodity prices already rising in 2017, keeping food prices under control will be difficult if rains are below normal.
On the macro front, the government will announce Q3 GDP data on Tuesday. The Indian economy had risen 7.3 percent in Q2 September, 2016. The upcoming numbers will be an important data point to watch given that the full impact of demonetisation will be seen.
Manufacturing PMI and Services PMI data will be unveiled by Markit Economics on Wednesday and Friday respectively, and would be closely watched following the dismal IIP data for December. Globally, manufacturing and services data for China, Japan, the euro zone and the U.S. will be unveiled in the coming week.
With the BJP doing well in local body elections in Maharashtra, hopes that the party will win the crucial Uttar Pradesh election may be rekindled. However, looking at the macro economic situation, I would suggest continued booking of profits in this liquidity-driven rally supported by positive sentiments. Expensive markets tend to deceive for a while and one needs to exercise a lot of restraint.