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A volatile week ended with the Nifty closing slightly in the green at 9,428 on reports that monsoon rains would arrive on the Kerala coast two days ahead of schedule. Recent inflation data which increased hopes of a rate cut aided sentiments in the initial part of the week. However, weakness crept in during the last two trading sessions due political turmoil in the U.S. and Brazil. Indices managed a decent recovery to end the week due to finalising of GST rates on Friday.
The rupee plunged the most in 11 months on risk-off sentiment, while crude oil rose back above $50 a barrel to a one-month high on growing confidence that OPEC will maintain its efforts to cut output when they meet on May 25. Caution is expected to prevail in markets and investors will keep a close watch on global developments.
FMCG stocks rose as the GST rate for most products will be below current levels. Rates for services such as telecom, hospitality and cinema came as a surprise, while the 18 percent tax rate on banking and financial services was largely on expected lines but would be inflationary. Luxury hotel services and business class air travel will be taxed at 28 percent, and the rate for aerated drinks will be 40 percent. There was a distinct undertone to provide relief to the common man while penalising whatever was deemed a luxury.
In stock-specific action, HUDCO, the first NBFC to launch its initial public offering in 2017, listed at a premium of 22 percent - the highest for any state-owned company in the past seven years.
As quarterly numbers poured in, big banks such as SBI and PNB reported improvement in asset quality. HUL numbers were above expectations as net profit rose 6.2 percent and volumes grew by 4 percent as pent-up demand post demonetisation boosted volumes. Tata Steel and Bajaj Auto numbers were largely in line with expectations.
For the coming week, we can expect volatility on account of derivative contract expiry. Investors will keep a close eye on the arrival of monsoon and any disappointment on that front will prove costly for stock markets. With Q4 earnings season nearing its peak, some of the prominent results expected in the coming week are GAIL, Tata Motors, Lupin, Bosch, IOC, ITC, Tech Mahindra and Sun Pharma. On the macro data front, India's GDP estimate for January-March will be out on May 31.
On the global front, it will be a data-heavy week with Markit Flash Eurozone composite PMI, U.S. Composite PMI and Nikkei Flash Japan Manufacturing PMI for May due on Tuesday. Data on April home sales in the U.S. will be announced on Tuesday and FOMC policy meeting minutes will be out on Thursday.
There is currently a risk-off trade in emerging markets due to geo-political tensions and political tumult in the U.S. and Brazil. And with the road cleared for implementation of GST from July 1, we should also be prepared for disruption at home in the short to medium term.
The Nifty has given away gains after touching 9,500 levels, and global political developments will be closely watched for future movements. We might see some recovery in trade on Monday but markets seems to have lost the confidence and momentum of the past few weeks. The cracks could become bigger.
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.