Markets to trade with positive bias on macro matters

We expect Indian markets to trade in a broad range with a positive bias on the back of strong domestic macros, optimism over the US-India trade agreement and above-average monsoon forecast. Global market volatility, driven by geopolitical uncertainties and concerns over United States’ economic growth, may continue to impact investor sentiment.

This will be the last week of quarterly earnings announcements, with results from Bajaj Auto, LIC, InfoEdge, Aurobindo Pharma, P&G, Cummins, IRCTC, Apollo Hospitals and Nykaa amongst others. Market focus will move towards macroeconomic indicators, sector-specific trends, and global developments. Key macro data releases this week include US and India March-quarter GDP, India industrial output, US retail inflation and consumer confidence data. There is also renewed excitement in the primary market with four mainboard initial public offerings opening for subscription and two IPOs scheduled for listing this week.

Last week, benchmark Nifty50 ended with a loss of 0.7% at 24,880. Broader markets were mixed with Nifty Midcap100 down 0.7%, while Smallcap100 was up by 0.4%. Amongst sectors, Realty and PSU banks were the top performers with gains of 2.6% and 1.1% respectively. The drop in India’s retail inflation (3.16% in April vs 3.34% in March) fuelled hopes of continued RBI rate cuts, boosting sentiment for the real estate sector. Meanwhile, Nifty Auto and IT witnessed profit booking, ending with loss of over 1.5% each.

The metals index showed resilience in a volatile market, supported by positive sentiment after China’s decision to lower its benchmark lending rates for the first time in seven months. IT stocks experienced volatility due to Moody’s recent downgrade of US credit rating and economic concerns over the US tax-cut bill.  The said bill was passed by the House of Representatives and is headed to the US Senate for approval or changes.  On one side, there’s hope that Trump’s tax reform could stimulate growth. On the other, there are concerns that the plan could add significantly to government debt and inflate the fiscal deficit.

Capital markets are expected to see a gradual recovery in volume growth, along with increased retail participation. This would support the growth trajectory for brokers and exchanges. Additionally, improvement in equity mutual fund flows, driven by industry initiatives to enhance financial literacy and foster long-term investment perspective, would be favourable for AMC stocks.

On the US-India trade front, following Commerce Minister Piyush Goyal’s recent visit  for trade negotiation; an interim agreement is expected before July when the pause on US reciprocal tariffs are set to end. This has led to optimism in export- oriented sectors, with reports indicating that India may seek full exemption from the additional 26% tariff on domestic goods.

Overall, the Indian market outlook remains firm with continued action in the broader market and sectoral front. Foreign and domestic flows have been relatively stable in May so far with foreign institutional investors (FIIs) infusing above Rs 10,397 crore and domestic institutional investors investing Rs 34,198c crore, extending support to the market sentiment. The forecast of an above- normal monsoon adds to market optimism and is expected to boost fertilizer, agrochemical, FMCG, auto and rural finance sectors as well as the overall economic growth.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)