Are Indian Markets headed towards a new Bull Run

Are Indian Markets headed towards a new Bull Run          
 -- A hurdle-race ; A bumpy road ahead.

 --- Dr. N. R. Phade

Dear Friends ,
         Welcome to Fortunes at nrptrends.
Today we shall discuss upon the present state of Indian Equity Markets. Lets see into those main factors that are driving the markets at the moment which shall help us to decide weather the markets are headed towards a new bull run.

After hitting 52 week low on the budget day at 6825.80 Nifty bounced back the day after to mark the rise of little over 500 points in just 3 trading sessions. The story about Sensex is the same with a rise of around 1700 points.

The markets crossed over its key resistances in a matter of just few days , fueled by fresh buying commitments by the FII and supported by a pro-development budget by the FM. But such a sharp spike has raised many a doubts about the sustainability of this rally. During the period FII poured around a little more than Rs 4000cr. into the Indian market while the DII were sellers to the tune of Rs 1700cr in the same period.

Many a analysts are surprised by this sudden jerk and are unsure weather the markets have really found the bottom. Some stocks have rebounded around 25-30% in just two days, which is a thing that can't be taken with a casualness of a bull market. Many feel that this was a short covering of some kind which usually comes when the markets are tired of going short day in and out , and some event sparks a reverse sentiment. Such a move definitely doesn't warrant a making of a bull rally. Hence some extra caution.

Nifty has negated its short term negative trend by crossing above the resistances of 7240 and 7365 closing the week at 7485. The index has made a double bottom with positive divergence on indicators which helped it to move higher led by short covering and supported by fresh buying activities. But now consolidation followed by investment based buying need to follow for this rally to continue to higher levels. But if Nifty50 falls below 7302, it shall again enter into trading zone between here to 7000. ( see here )

What are the factors, the hurdles that brings such a pessimistic view : Lets give a thought to those :-

There are some troubles on the international front that haunt all the economics worldwide- like US FED meet, The Yuan, Tokyo, Moscow woes.

Fed meet : The US Federal Reserve meet is due on March 15-16. It is expected that the Fed will not hike rates, and instead look at reversing the cycle. But strong data points in the US put analysts in a fix. This remains a big risk for equity markets across the globe along with India.

Yuan devaluation : The risks of further currency devaluation by the People's Bank of China looms large. Its believed that the risk from the continuous devaluation of the yuan can impact the currency and moderate growth momentum going forward. ( see here ) It is bound to stress most Asian currencies including India as the real effective exchange rate shall be affected. INR has depreciated by almost 80% against Chinese Yuan in the last 10 years. Even though that, India imports much more from China but exports to China are very much less in comparison. There prevails a great disbalance in this trade wherein India is always in a stressed condition.

The Japanese and the Russian economics too are struggling with their own problems which definitely leave a substantial impact on the Indian economy.

On the domestic front there are some factors, which may prove to be detrimental or favorable for the Nation depending on how they are addressed to.

Rate Cut : A very nice budget has provided room for a rate cut by the RBI. Markets are expecting this since some time now. A cut in rate would surely boost the sentiment of the market and send Bank Nifty spiraling further. With the government sticking to 3.5%  fiscal deficit target and a lower borrowings have led to a rally in fixed income market. This has created a good room for a rate cut. The market would keenly watch this move. If a rate cut wouldn't materialize then the market will take stock of the situation and some selling would be seen.

Earnings : The Corporate India is continuously struggling with weak earnings which doesn't show signs of improving in near future. In-fact there can be more pain in coming months. The external demand is quite weak and wouldn't improve for some time now. The commodity prices have negatively affected the manufacturers. There was some solace from falling crude prices but recently a strong recovery is seen in that sector too.

Banking Npa : PSU banks are reeling under the pressure of NPAs since long. The market had expected quite a higher allocations for ailing banks in tune to Rs one lac cr. Non-compliance of those expectation is an unspoken message by FM Mr Arun Jaitley which is quiet clear. He has announced that he shall take all the necessary measures to make the banking system healthy once again. The Gnyaan Sangam is one step towards this goal.

GST : The markets were disappointed to know that nothing has been done in the matter of GST.

"The most critical things that the government needed to do in any financial management is to widen the tax base and for that the silver bullet in India really is the GST and because we all know where it is stuck and hopefully, it gets through once the Rajya Sabha math allows it, that really kick starts the whole taxation cycle" Manish Chokhani, Director, Enam Holdings, said in an interview with ET Now.

"In theory GST alone can add five percentage points of GDP to government tax revenues, leave alone the fact that it may actually boost GDP by one or two percentage points. So that to me is one big silver bullet," he said.

But against all this, the FM has provided a very pro-growth budget. The focus on development of rural India, sops given to boost the housing sector, and aim to improve the health of banking system by nipping the problem of NPA in the bud instead of finding short-lived solutions like capital infusion to manage bad debts; all this is going to have a welcome effect on the Indian economy

Secondly, the Seventh Pay Commission's guidelines are very much in the door of implementation. This shall put immense purchase power in the hands of common man which turns to be a boon to housing, Auto & fmcg  sectors. This, though a bit inflationary, is bound to put new energy into the Indian economic eco-system.

To sum up this discussion, there are some sectors who can potentially be performers for the Indian economy, The Indian Equity Markets. These sectors namely Banking, Auto, Fmcg, Housing finance, Agro, Infra, Steel & cement shall be the drivers of the forthcoming bull run.

This is all for now friends. Take good care of yourselves. Have a great time. Keep visiting for more. Happy Investing from Fortunes at nrptrends.

  -- Dr. N. R. Phade