Manufacturing data, BoE interest rate to guide market cues

This week is busy on the economic calendar front with the Bank of England interest rate decision due on Thursday. Apart from this, the US, China, Eurozone and India would come out with their manufacturing PMI data along with GDP and inflation data from Eurozone. On the domestic front, auto monthly sales numbers would be released this week.

Domestic equities snapped its four-week rally and took a pause last week amid uncertain global cues and mixed earnings reports. Hawkish commentaries from various central banks dented sentiments.

Last week, Nifty witnessed some profit booking after an almost 5 per cent rally over the prior four weeks. The index lost 99 points to close at 19,646 levels. The broader market however continued its northbound journey with Nifty Midcap100/Nifty Smallcap100 up 1.5 per cent /0.6 per cent . Sectorally it was a mixed bag with realty and pharma being the biggest gainers – 5 per cent each, followed by metals and energy. FMCG, banking and auto lost 1 per cent each.

On the domestic side, pharma sector saw huge buying interest on the back of good results announced by Cipla and Dr Reddy while auto stocks were led by strong numbers posted by TVS, Bajaj Auto, and JLR. The real estate sector also saw a run-up on the back of strong demand growth seen in the luxury housing segment. Metal stocks were in the limelight on hopes of more stimulus measures announcements from the Chinese government which would push demand.

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During the week two major corporate announcements were made. L&T announced its first-ever buyback, while Tata Motors decided to extinguish its DVR shares. L&T approved the buyback of 3.33 crore shares at a maximum price of up to Rs 3,000/share for total consideration of Rs10,000 crore. Tata Motors, on the other hand, would be issuing 7 shares of Tata Motors against 10 shares of Tata Motors DVR. Overall the structure of the market remains positive given robust macro data points and healthy results season so far. Monsoon too has been good so far with Pan-India rains turning 7 per cent above LPA now. FIIs also continue to be buyers for the fifth straight month with buying of more than Rs17,000 crore in July so far.

On the global side, US Fed raised interest rates by 25 bps last week which was on expected lines, while it kept the door open for more rate hikes. In addition, US Q2 GDP data came in higher than expected which further aggravated the concerns that the interest rate may take time to cool off.

Bank of Japan too turned hawkish as it plans to adjust its bond yield constraints, allowing 10-year bond yields to float above 0.5 per cent . This led to profit booking across global as well as domestic markets.

The market is likely to consolidate given no clarity given by the US Fed on its future course of action, leading to mixed global cues. Overall strength continues in the market, with the likelihood of consolidation at higher levels.

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