October 22, 2017 / 5:06 AM / a year ago

India Markets Weekahead: Excess liquidity creating room for more speculation

REUTERS - By Ambareesh Baliga

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in Mumbai, March 4, 2015. REUTERS/Shailesh Andrade/Files

Markets closed Thursday’s special Diwali Muhurat trading on a negative note with the Nifty closing down 0.2 percent for the week at 10,146. Trading for the truncated week was mostly rangebound as a mixed set of key corporate results kept markets busy.

In addition to signs of a slowdown in China’s economic growth, geopolitical tensions resurfaced after North Korea threatened ‘a nuclear war may break out any moment’. It rejected diplomacy with the United States for now and is committed to developing a long-range intercontinental ballistic missile capable of striking the east coast of the mainland United States.

The rupee entered into a strong support zone between 64.80-65 from which a major rebound is expected towards 65.80. Globally, the dollar has strengthened against euro and yen so the rupee could also come under pressure in the coming days.

Quarterly earnings this week were a mixed bag with Axis Bank being a prominent disappointment - as a result the stock reacted sharply. Godrej Agrovet and MAS Financial Services had a stellar listing — the former gained 37 percent from its IPO price, while the latter listed at a 44 percent premium to issue price.

Wipro’s profit-after-tax (PAT) in the second-quarter was slightly better than expectations, although revenue missed estimates and fell 1.5 percent as the healthcare software services business continued its decline longer than the company expected amid uncertainty around Obamacare in the United States. The guidance for third-quarter revenue was also disappointing.

Axis Bank’s asset quality was a major concern and provisions continue to rise. Its PAT of 4.32 billion rupees was below market expectations. Gross Non-Performing Asset (GNPA) has risen for the last nine quarters.

ACC PAT nearly doubled, beating analyst estimates on a fall in interest costs and a 17.6 percent increase in quarterly volume growth. UltraTech also reported better-than-expected numbers with its PAT declining 28 percent to 4.31 billion rupees. The management of both companies believes that demand for cement and related products will stay favourable in the coming quarter, spurred by the government’s increased spending on infrastructure.

Bajaj Auto second-quarter PAT fell 0.6 percent lesser than estimated on higher revenue led by 4 percent volume growth after five quarters of decline. Hero MotoCorp sold a record 300,000 two-wheelers on the auspicious occasion of ‘Dhanteras’ on Wednesday.

On the macro front, India’s annual wholesale price inflation stood at 2.6 percent for September.

For the coming week, markets are expected to be volatile as derivative contracts are set to expire. The results season is expected to pick up steam with prominent companies such as Infosys, HDFC Bank, Asian Paints, Ambuja Cements, ICICI Prudential Life, Zee Entertainment set to announce their numbers.

On the global macro data front, the United Kingdom will announce third-quarter GDP data on Wednesday. The United States will release new home sales data for September on the same day. The European Central Bank meets on Thursday, while U.S. third-quarter GDP data will be announced on Friday.

The primary market will see yet another entrant with the IPO of Reliance Nippon Life Asset Management set to hit the street. It will be the first mutual fund management company in India to be listed. Again like most IPOs this year, 60 percent of the issue is sale of shares by promoters.

Markets are in a different orbit with fresh funds coming in at every decline. It’s not a question of valuation but prices - every fall is bought into as the stocks seem cheaper when they correct marginally.

Excess liquidity is creating more room for speculation than fuelling economic activity. It’s a paradox that an economy that is not creating new jobs nor productive assets - resulting in the lowest credit growth in decades - has equity markets touching new highs along with continued consumer spending.

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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