Geopolitical developments in focus

Indian equity markets were volatile this week on the back of escalating geo-political tension between Iran and US and spike in global oil prices. However, market sentiments have revived after US and Iran appeared to step back from a deeper military conflict.

The US has offered to impose sanctions on Iran instead of military action which eased off the tensions. Commodities like currency, oil and the yellow metal fell sharply due to easing geopolitical tensions. Moreover, the hope of good quarterly results and a favourable union budget also boosted markets sentiment.

On the domestic front, the Central Statistics Office (CSO) has pegged FY20 real GDP growth at 5%, same as the RBI’s forecast, thus expecting a decent recovery in 2HFY20. 3QFY20 earnings season has kicked off with Infosys first declaring its results.

We expect this season to be another quarter of muted earnings, largely led by BFSI, Auto and Consumer. We estimate Nifty PBT/PAT to increase 2%/8% YoY, while ex-BFSI, we expect Nifty PBT/PAT to decline 6%/2% YoY.

The government has opened up the coal mining to firms other than those in the steel and power sectors, clearing the way for the first phase of commercial coal auctions within this financial year.

The amendments will allow domestic and foreign steel companies and local power companies to take part in the auctions to be held to reallocate the captive blocks cancelled by the Supreme Court in 2014. This will limit iron ore supply disruption due to upcoming merchant mining leases expiry. The Centre also decided to provide Rs 5,559 crore for the construction of the North East Gas Grid project. Further, the CCEA gave ‘in-principle’ approval for strategic disinvestment in several public sector firms which supported market sentiments.

Ahead of the Union Budget, PM Modi is meeting top economists and experts at NITI Aayog to discuss the state of economy and steps to be taken to revive growth. Markets sentiments have got boosted with the expectation of big announcements in the budget this year.

Going ahead, markets would watch out for geopolitical development over US-Iran tussle along with the 3QFY20 earnings season on the domestic front. Investors would also be watching out for pre-budget developments which would influence the market.

Technically, Nifty has to continue to hold above 12150 zones to witness an up move towards lifetime high of 12300 then a fresh rally towards 12400-12500 zones. On the downside, major support is at 11900-11835 zones while immediate support shifts at 12050 levels.

(The writer is VP - Head of Research (Retail) at Motilal Oswal Financial Services)