The markets continued their winning streak in the past week, with the Nifty gaining another 1.52 percent to close at 5871 on Friday.
The yen impact helped Maruti surprise even the most optimistic earnings estimates and its stocks jumped 5 percent to close at a lifetime high of 1673 rupees. The company seems richly valued and does not take into account the slowdown which we may encounter over the next few months.
Jet Airways also surprised the street by concluding a long-pending deal with Etihad Airways. The valuation was higher than most estimates but the stock corrected after the initial spike on Thursday as shareholders will not benefit immediately from the deal and cash flows will not be able to reduce debt significantly.
The partnership will have long-term benefits, especially for Jet’s international business and connecting domestic traffic. I am sure the current Jet management will have to concede further room to Etihad in order to justify the premium valuation, which could prompt regulatory authorities to watch whether Etihad gets into the driver’s seat. This in turn could compel the Gulf carrier to make an open offer through its holding.
The monsoon department has predicted normal rains and this will hopefully bring food prices under control. Oil and gold have seen a healthy bounce but this could be a temporary phenomenon.
Going ahead, headline inflation is expected to be benign and the current account deficit is expected to halve in the next 12 to 24 months, according to the finance minister. The Reserve Bank of India could announce a 25 bps cut in repo rates on May 3, leaving the CRR unchanged. More important would be the tone of commentary and analysts expect the RBI governor to have a dovish view.
The HSBC PMI and cement and auto sales data would be released on May 1, which also happens to be a market holiday. Auto sales will show whether aggressive discount strategies have paid off.
Some of the important company results next week are Bharti Airtel, Grasim, JP Associates, Kotak Mahindra Bank and Ambuja Cements. I have been bullish on Bharti Airtel for the past few years, but have recently turned cautious due to regulatory issues facing the company, and the expected launch of Reliance Jiyo, which could be a game changer for the telecom sector.
The unpredictability of stock markets is proof of their overall fairness. About a fortnight ago, I had suggested staying out of the markets. Since then, we’ve had more than a 7 percent move in the frontline index, but midcaps continue to underperform.
I had also suggested that we should buy once the bottom is confirmed. The “bottoming out” does not normally happen with a V-shaped recovery and I would be sceptical to buy at the current juncture.
I would instead utilize the opportunity to book out so as to have extra cash to buy at lower levels. The political scenario keeps me worried as it could affect the policy reforms agenda of the UPA government. Thankfully, external factors have been benign. Otherwise, markets would have sunk lower as reforms of the past few months are yet to show visible results.
(Any opinions expressed here are those of the author and not of Thomson Reuters)
