With the Government walking the talk on reforms, the equity market is likely to sustain its positive sentiment. However, Thursday being the settlement day in the derivative segment for September contracts on the NSE, markets will see higher volatility. Besides, meaningful profit-taking will also push the equities down a bit.
Indian equities have burst onto the investors’ radar, particularly that of foreign institutional investors (FII) thanks to the recent reform blitzkrieg. FIIs have pumped in about Rs 9,000 crore in September, half of which came on September 17 and 18.
Citigroup analysts Aditya Narain and Jitender Tokas said in a research report, “India has been under the weather, but recent fuel price/FDI/divestment reforms suggest the Doctor (Dr. Singh) has finally/correctly diagnosed the problem, is administering the first bitter medicine dose (i.e. political opposition ahead: expect Govt. to hold ground), though the patient (economy) will take time to improve. The direction/platform for policy making does appear to have changed; Equity/Macro markets should lead this change – though economic, investment and earnings growth could well lag these newer expectations.”
Amidst optimism, there were some words of caution too. Deutsche Bank Markets Research, which raised the BSE Sensex year-end target to 20,000, said: “It will not be a one-way street for Indian equity markets. While the measures are certainly positive and indeed encouraging, the sustainability of the rally after the initial strong velocity will be driven by a combination of factors ranging from the way government handles a belligerent opposition, a possible monetary loosening, the ultimate outcome of the coal allocation controversy, deteriorating asset quality of Indian banks and SEB reforms (expected after cabinet reshuffle expected over next seven days).”
This week, the focus will be more on individual sectors. The appreciating rupee could check information technology stocks further. Sugar stocks will remain in focus on reports that the Government will announce a reduction in subsidy on sugar made available to below-poverty-line consumers under the public distribution system.
Similarly, shares of the power sector, on hopes that the Government will announce measures to improve the finances of power utilities, and pharma, on expectations of easing of foreign direct investment norms, will also witness higher activity.
Marketmen across the globe are keenly watching the Spanish government’s announcement (September 28), on the banking system review report, which will also include how much the European Stability Mechanism needs to recapitalise those banks. Besides, cues from the US markets will also be closely monitored. The US stocks, which are hovering around five-year highs, will move according to the third-quarter earnings to be announced by the American companies.