Fed minutes, global macro data to drive Dalal Street

This week, domestic market would largely track the US debt ceiling negotiations which is likely to see a quick resolution. Apart from this investors would keep an eye on FOMC meeting minutes, US Q1 GDP numbers and UK inflation data. On the domestic front, fortnightly forex reserve data would be released.

While the market saw some profit booking at higher levels, the overall strength is visible and dips are being bought into. Healthy result season and consistent FII buying have been providing support to the market. We expect the market to resume its upward journey after taking a pause last week.

Last week, Nifty snapped its 3 week gains and fell 111 points to close at 18,203 levels. Profit booking was witnessed after 4 per cent run-up seen over last three weeks. A lot of stock specific action was seen based on the results announcement by many mid and small companies apart from heavyweights. However, the positive momentum continued in the broader market with Midcap 100/Smallcap 100 up 0.3 per cent/0.9 per cent. IT and realty were the major gainers for the week while pharma was the major loser.

Global markets started the week on a jittery note as the debt ceiling negotiations continued. Investors were concerned that the US faces the possibility of defaulting at the start of June. However, as the week progressed, the concern turned into optimism with investors considering the possibility of a quick outcome of the US debt ceiling negotiation.

On the domestic front, mixed results from the heavyweight led to some profit booking. FIIs have been continuous buyers for the month of May so far, having bought more than Rs 17,000 crore. Overall, the macro backdrop is positive with the expectation running high that RBI may end the rate hike cycle after India’s CPI inflation eased to an 18-month low of 4.7 per cent in April and remained under RBI’s comfort zone. WPI inflation too declined for the 11th straight month, falling to -0.92 per cent in April. The trade deficit too narrowed for the month of April despite export being the worst in over last 34 months. This was largely on the back of a sharper contraction in non-oil-non-gold imports.

On the sectoral front, Indian hospitality industry reported strong earnings growth. The favorable demand-supply scenario, recovery in foreign tourist arrivals along with a good wedding season are expected to drive the near to mid-term outlook. Additionally, the ongoing improvement in connectivity across the country will drive the structural growth in the industry. The imposition of a 20 per cent TCS on foreign travel spends can further boost domestic travel within the country.

New age foodtech companies were in focus post Swiggy claimed to turn adjusted EBITDA (excluding ESOP) profitable in its food delivery business for the March quarter. This brings cheer for investors as the overall road to profitability is coming closer.

(The writer heads retail
research at Motilal Oswal Financial Services Limited)