Corporate earnings to dictate market trend this week

Corporate earnings to dictate market trend this week

New Delhi, Jul 29: Renewed buying interest following strong corporate earnings by India Inc led to the Indian equity market recouping its previous months’ — May & June 2018 — losses to hit new all-time high in July 2018.
Until July 27, 2018, the broader indices Nifty and Sensex rose 5 percent each, with a modest recovery seen in the midcap and smallcap indices. In July 2018, the aggregate market capitalisation (m-cap) of BSE listed companies on a month-on-month (M-o-M) basis rose sharply by Rs 6 lakh crore as against an aggregate value erosion of Rs 7.8 lakh crore in m-cap of BSE companies seen in May-June 2018.
While concerns over global trade war and weakening INR remained throughout the month, a significant decline in crude oil prices (down 7% from its high) and easy sailing by ruling government in no confidence motion bolstered confidence among investors.
A surprise uptick in USA oil inventories, assurance of increase in supply by Saudi Arabia and Russia and likely production commencement from Libya and Venezuela led by ease in political crisis drove oil prices down.
A low oil price is crucial for India considering oil makes for 75-80 percent of its total imports into the country. On a year-on-year basis, India’s import bill for oil & petroleum products surged by whopping 57 percent to USD 12.7 billion leading to widening of current account deficit (CAD) by USD 16.6 billion (five-years high) in June 2018.
FII’s outflow from Indian markets (Debt + Equity) also softened significantly during the month to Rs 500 crore as against average outflow of Rs 20,400 crore during April-June 2018. Further, consistent domestic inflows (Rs 5500 crore in equities) supported recovery in markets.
RBI is likely to announce its monetary policy next week. We expect monetary policy committee (MPC) to maintain status quo this time despite CPI inching up to 5 percent in June 2018 surpassing the RBI’s revised reference range of 4.8-4.9 percent for 1HFY19. We believe MPC is likely to see the final outcome of ongoing monsoon progress and transition of recent correction in crude prices in the coming months.
Stay invested in quality stocks and look for opportunities for bottom-fishing. Having seen a sharp correction in mid and smallcaps over last couple of months in the backdrop of corporate governance issues, ASM measures of SEBI and mutual fund reclassification, we believe correction is overdone in several quality mid-cap stocks and that makes a case for bottom-fishing.