September 2, 2018 / 6:39 AM / 8 months ago

India Markets Weekahead: Action shifts to mid-caps and small-caps

REUTERS - Markets rose for the sixth week in a row, posting their longest winning streak since January 28, as global sentiment improved after the U.S.-Mexico trade deal.

A broker looks at a computer screen at a stock brokerage firm in Mumbai July 6, 2009. REUTERS/Arko Datta/Files

The rally was led by IT heavyweights Infosys and Tech Mahindra after the rupee depreciated to a new low against the U.S. dollar. However, renewed U.S.-China trade war concerns capped gains.

The Nifty rose 1 percent during the week to end at 11,680 while the mid-cap and small-cap indexes rose around 2 percent. FIIs were net sellers to the tune of 5.79 billion rupees while DIIs were net buyers to the tune of 6.05 billion rupees.

The rupee fell below 71 per dollar for the first time and clocked its biggest monthly drop in three years as rising crude oil prices threaten to put a bigger strain on the nation’s finances.

The United States and Mexico announced a trade deal after months of negotiations between the two countries over the future of the North American Free Trade Agreement (NAFTA).

The new deal, which President Donald Trump said would be called The United States-Mexico Trade Agreement, is expected to last 16 years and will be reviewed every six years.

In stock-specific action, Yes Bank was the top Nifty loser during the week, falling over 8 percent after the RBI deferred approving another three-year term for CEO Rana Kapoor, while allowing him to continue in his position for now. His term was set to end on August 31.

Pharma companies remained in focus as they are expected to benefit from a weak rupee since most of the frontline ones have exposure to the U.S. market.

Oil marketing companies and aviation stocks also saw movement because of the double whammy of rising oil prices and a falling rupee.

Troubled Jet Airways posted a loss of 13.23 billion rupees in the first quarter due to higher fuel expenses, and investors will closely watch the airline’s survival plan.

For the coming week, markets are expected to react positively to the upbeat second-quarter GDP numbers, which returned to 8 percent growth for the first time in two years, supported by a positive base effect and improving economic conditions.

Focus will also be back on the U.S.-China trade conflict, where the situation continues to be grim. Volatility will prevail as the U.S. will activate new tariffs on $200 billion worth of Chinese goods.

Automobile companies will be watched as monthly sale numbers for August start coming in. The floods in Kerala is expected to have an impact on sales, especially in the passenger vehicle and two-wheeler segments.

Among the numbers declared so far, Ashok Leyland sold 17,386 units in August, a rise of 27 percent on a yearly basis. Maruti Suzuki’s sales fell for the second straight month and declined the most in nearly two years. India’s biggest auto manufacturer sold 158,000 units, a decline of 3.4 percent from a year earlier.

Brokers trade on their computer terminals at a stock brokerage firm in Mumbai July 23, 2008. REUTERS/Punit Paranjpe/Files

Auto sales in September, which is generally strong due to the onset of the festive season, could suffer due to the introduction of long-term third-party insurance policy for new vehicles. Buyers of four-wheelers will have to take a three-year policy and two-wheeler buyers will have to take a five-year policy upfront, thus increasing the initial cost of ownership.

The Nikkei Manufacturing PMI for August will be announced on Monday, while the Nikkei Services PMI for August will be released on Wednesday. On the global front, the Caixin China General Manufacturing PMI for August will be unveiled on Monday while the U.S. ISM manufacturing PMI for August will be out on Tuesday.

Stock market momentum continues to be supported by domestic liquidity as the action decisively shifts to mid-caps and small-caps. This trend is expected to continue for the next few weeks during the festive season till state elections bring to the fore the fears and uncertainty related to India’s general election in 2019.

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.

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