Markets momentum to continue this week, new highs expected

Domestic equities this week are expected to sustain their bull run and touch new highs while volatility is likely to remain in broader markets. European Central Bank interest rate decision and PMI data releases from United States, United Kingdom and China along with US non-farm payroll data for February will be important events to watch out for. Additionally, US Federal Reserve Chairman Jerome Powell will testify this week, something for investors to keep an eye on.

Last week, Nifty witnessed huge volatility and oscillated in a 500 points range. It however managed to recover on the last day post the release of strong domestic GDP data and touch a new all-time high, thus ending the week with gains of 126 points (+0.6%) at 22,339 levels.

Broader market however could not recover with Midcap100 and Smallcap100 down 1% and 0.7% respectively. Sector wise, it was a mixed bag with buying seen in Metals, Automotives, Private Banks, Financials and Infra. Media bore the brunt of sell side, followed by Pharma and IT.

The Securities and Exchange Board of India’s cautious stance on midcap and smallcap funds led to profit booking during the week. However, we saw recovery on Friday, led by positive news. India's real GDP surged by 8.4% in the October-December driven by a remarkable double-digit growth rate of 11.6% in the manufacturing sector and a solid performance in the construction sector with a growth rate of 9.5%.

The auto sector saw momentum on Friday after car makers reported better-than-expected sales numbers for February. Further, defence and solar sectors saw renewed focus. The Defence Ministry announced signing of ive capital acquisition contracts worth over Rs 39,000 crore which will further strengthen indigenous capabilities and order visibility. The government also approved a Rs 78,000 crore subsidy for the installation of solar plants and 300 units of free power for one crore households. The cabinet also approved the setting up of three semiconductor units in India.

On the global front, last week was important from an economic data point of view. US GDP was revised slightly lower to 3.2% for the third quarter from earlier estimates of 3.3%. Even the consumer confidence data fell slightly in February. Now the attention will be on the US Fed’s commentary on interest rate cuts in its March meeting.

We expect the ongoing momentum to continue while taking cues from a fresh set of economic data releases this week. Sectors in focus will be Autos on the back of better-than-expected monthly sales numbers along with Cement and Metals on the back of stronger economic growth. Defence and Solar sectors will continue to be in limelight on account of improved order visibility.

(The author heads Retail Research at Motilal Oswal Financial Services Ltd)