September 10, 2017 / 9:33 AM / 2 years ago

India Markets Weekahead: Range-bound volatility a good trading opportunity

REUTERS - Indian markets remained in a narrow range throughout the week with the Nifty dipping 0.5 percent to close at 9,935 after gaining for three straight weeks.

People walk past the Bombay Stock Exchange (BSE) building in Mumbai, India, January 25, 2017. REUTERS/Shailesh Andrade/Files

Geopolitical tensions kept markets nervous, but statements from U.S. President Donald Trump and Congressional leaders agreeing to raise the U.S. government debt ceiling until December resulted in some relief.

Tensions between the United States and North Korea have escalated. The question lingering in my mind is - are geopolitical issues becoming the new normal? We have repeatedly seen that North Korea launches or threatens to launch a missile, the stock market tumbles as safe haven gold gains and then the markets forget everything and we begin a new day.

Are we getting over-complacent that nothing will happen and life will go on as usual? But his cycle just cannot continue for a long time. In case of a real attack (not just threats), the markets can take a deep tumble.

Back home in India, retail investors seem to be ignoring all the global cues and domestic issues such as high valuation and poor macroeconomic numbers, and continue to pour in funds via mutual funds.

This is due to lack of alternative investment options and preference over physical assets such as gold and real estate.

Data suggests mutual fund assets under management crossed a record 20 trillion rupees and have doubled over the past three years. Net inflows have crossed 2.47 trillion rupees so far this calendar year as against 2.83 trillion rupees in 2016.

On the stock-specific front, textile stocks were in focus after the Gujarat government decided to extend its textile policy for one more year.

Meanwhile, auto sales for August were a positive surprise in all three segments - passenger vehicles (up 19 percent), two-wheelers (up 14 percent) and commercial vehicles (up 26 percent) registering impressive double-digit growth.

This could be attributed to post-GST restocking of inventory by dealers along with improved rural sentiments and the early arrival of the festival season.

Dr. Reddy’s traded weak after a German regulator concluded the audit of its Visakhapatnam formulations facility with six major observations.

Metals stocks hogged the limelight and the index hit a one-year high due to a hike in alumina prices, which have surged by 22 percent so far this year in the international market.

On the macro data front, the Nikkei India Services PMI declined for a second month in a row to 47.5 in August due to GST impact. 

On the global front, China's August services PMI showed an increase to 52.7 from 51.5 the previous month. 

The European Central Bank (ECB) kept its policy rates unchanged and maintained an accommodative stance. The ECB is expected to discuss how to wind down quantitative easing at its meeting next month.

The coming week sees two well-known companies and ICICI Lombard General Insurance coming out with their IPOs. Last week, Bharat Road Networks and Dixon Technologies had a mixed response with the latter garnering a 117x subscription, whereas the former barely managed 2x.

The GST Council meet over the weekend provided some relief to the auto sector where the hikes in cess were lower than expected with SUVs taking the biggest hit of 7 percent, whereas smaller cars have been left untouched.

Rates were rejigged for about 30 items. The record receipts of GST for July seem to be overwhelming and there is an indication that if collections continue to be robust for the next two months, the government may consider further reducing the slabs for a number of items. However, the GST network has been facing glitches and the deadline for filing had to be extended to October 10.

With the cabinet reshuffle last weekend, the Modi government is slowly but surely shifting gears to get into the poll mode over the next year.

There could be populist measures coming our way and among the first such ones could be the reduction of GST rates. The government will also need to do some course correction as the economy continues to totter, despite statistics being doled out to the contrary.

On the macro front, the government is expected to announce IIP data for July on Tuesday. In June, IIP had contracted 0.1 percent - the lowest level since June 2013. CPI inflation for August will also be announced on Tuesday, whereas WPI inflation data will come in on Thursday.

Indian markets are consolidating at current levels despite geopolitical issues and worrisome macroeconomic data. The volatility in a given range is providing a good trading opportunity - one that should be utilised - but this is surely not an investors’ market.

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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