Business
Disinvestment, monsoon, rate cut to guide markets (Market Outlook)
By
Rohit VaidMumbai, May 17
The start of government's
disinvestment process, arrival of the monsoon, cooling of commodity
prices and signs of the apex bank's intention to cut policy rates will
play a major role in valuating Indian equities in the comming days,
market watchers said.
"Major triggers like Greece and the
parliament session have come to an end. The markets will now be a bit
volatile and look at international cues for further guidance," Devendra
Nevgi, chief executive of ZyFin Advisors, told IANS.
According to
Nevgi, the high US and European bond yields that played havoc in the
Indian markets last week by sucking-up funds have cooled-down and
foreign investors are likely to turn net-buyers.
"The extreme
upward yields in the US and Germany have come down a bit. Greece has
been able to pay its dues on time, even the international commodity
prices are seen to be stabilising, all these factors will help the
Indian equities market," Nevgi said.
"While other major emerging
economies like China, South Africa and Russia are currently seen as
attractive options, the correction in the Indian markets over the last
two-weeks will drive-in the short-medium term investors."
Nevgi
added that the corrections have driven stock valuations closer to their
long-term returns average, thus making them cheaper for investments.
"The
tactical rotation of funds from India-China or commodities markets will
return once the valuation becomes cheaper and more economic reforms
take place. The country's fundamentals are strong and have the ability
to attract long-term investments," Nevgi added.
Dipen Shah, head
of private client group research with Kotak Securities, pointed out that
threats of negative global cues still persists such as the economic
situation in Greece, further growth of Chinese and Russian markets and
escalation of commodity prices.
"If the Greece situation further
weakens, then the bond yields might surge further. This might lead to
further weakening of the rupee and the downward spiral cycle will
restart," Shah said.
Last week, US bond yields surged by 2.24
percent, while Germany's bond yields rocketed by 80 percent. This,
coupled with the foreign funds out-flow due to the minimum alternate tax
(MAT) issue, weakened the rupee's value.
On Tuesday, the Indian
rupee's value further weakened against the dollar by around 17 paise and
stood at Rs.64.17 per dollar. The rupee value currently stands at
Rs.63.43 per dollar.
The MAT on capital gains is expected to
impact the margins of foreign funds. This has hit their investment
appetite for the Indian equities markets.
According to data with
the National Securities Depository Limited (NSDL), the Foreign Portfolio
Investors (FPIs) had turned into net sellers in the Indian equities
markets. They off-loaded shares worth Rs.1,854.25 crore or $289.02
million for the week ended May 15.
According to Alex Mathews,
head-research with Geojit BNP Paribas Financial Services, many domestic
investors are waiting for the government to off-load stake in Indian Oil
and NTPC.
On the positive side, Mathews said that both retail
and wholesale price data was better-than-expected and have raised hopes
of a policy rate cut by the Reserve Bank of India (RBI) in its next
monetary review scheduled for June 2.
On Thursday, official data
showed that the annual rate of wholesale price inflation (WPI)
decelerated further to its lowest in six months. The WPI stood at
(-)2.65 percent for April from (-)2.33 percent for the month before.
"The
news on the RBI's intention on a rate cut in its next monetary policy
and its efforts in persuading banks to pass on the benefit will play on
the markets' minds. The news about the arrival of monsoon will also be
watched with alot of interest," Mathews told IANS.
(Rohit Vaid can be contacted at [email protected])