The two key drivers of the recent market rally has been :
Central banks : With the Fed and BOJ expected to cheer up the markets this week , risk assets rallied in anticipation . Fed is expected to maintain a dovish stance , this in turn is good for Indian equity market.
Oil : The recent rise in Oil prices continues. With the improvement in Oil prices the imminent fear of a global financial problem in commodity assets seems to have subsided. This has also supported rally in other commodities .
Indian equity markets moved up yesterday supported by strong results from Maruti . In the days to come we can expect some more stock specific rally in the market .
NIFTY looks to be set to take on 8000 by early May . Trades should remain long with a trailing stop loss.
In absence of any fresh triggers , markets are looking at Oil for direction . We will also have the Japanese central bank and US Fed come out with policy directions this week .
Japanese central banks will keep trying to weaken Yen . However there is not much they can do it seems . With every action their room for taking any further action gets reduced .
US Fed is in a much better position , with dollar continue to weaken against all global currencies . They will in all probability maintain their dovish stand .
In India news on monsoons will be keenly watched . The NIFTY is facing some resistance , but may bounce back soon . There will be more Stock specific opportunities with better risk return as compared to the index .
Oil could have corrected a bit more , but for the labour strike at Kuwait. Now with that we have all those who were short Oil running for cover .
Once the short covering gets over we will be back to fundamentals . The oversupply situation will put a ceiling on the long term oil price . Oil is going through some serious structural adjustments . Lesses investments in new Oil resources , drop in Oil production from the marginal produces will slowly bring balance back to the market .
Thus for low cost producers like Saudi it makes perfect sense to maintain prices at current levels with a slight upward bias.
Interest Rates : With the Fed deferring interest rate hike , the dollar seems to have oversold. Weak dollar has triggered a risk on sentiment . But we are left to wonder whether fundamentals can support current valuations for risk assets .
Indian monsoons are expected to be above average . The recent results for Infosys and TCS are also encouraging . All this put together has helped the market to inch higher .
All hopes of an output freeze by Oil producers were dashed as Doha talks failed. The markets was expecting at least some broad understanding on output freeze. As expected Asian markets opened lower .
We can expect some correction in Indian equity market in line with the global markets . However this correction will be short lived .
The markets will also react to strong Infosys results that was declared during the weekend. We will also see TCS coming with their results . ( Trading strategy Long Infosys Short TCS ).
The two factors that will determine the strength of this rally in the coming few days are :
Indian markets rallied in synch with the global financial markets . We may see more buying in the coming days . Nifty traders can hold their long positions with a target of 8000 . However as the markets has moved up very fast there will be periods of profit taking .
We have to look at stock specific action as the market stabilizes at higher levels .
Two stocks that looks reasonable priced and can gain from good monsoons and improving fundamentals are :
With the buyback coming up Wipro will also be an interesting long term play . Wipro has one of the highest promoter holdings in the IT sector . It share price has been underperforming as compared to Infosys. Thus an attractive buy back may trigger market interest in this stock .
Will this buy back by Wipro be the precursor for a subsequent delisting of the stock ?
China export numbers have come with better than expected . As we mentioned in the past the doomsday predictions about China was overdone. Though it may be bit early to predict a China lead rally , we may see major short covering in assets linked to China .
Oil has proved all skeptics wrong . It has crawled higher against all negative predictions supported by improving fundamentals and short covering .
Indian Monsoon is expected to be normal . This will be very good news for the fastest growing economy . Good growth from India and revival of growth in China can unleash the bulls in the global market .
Traders should go long on NIFTY with deep stop losses . Just one caveat : This will not be a one way up move … be prepared for volatility !
The initial indications are that India may get a good monsoon . As RBI looks at inflation numbers , this may further embolden RBI to do one more rate cut in a few months time .
Oil also seems to have stabilized at the upper end of the range of USD 40 to USD 30 . So long as this range holds markets will be comfortable in the medium term. However short term volatility based on day to day Oil price will continue .
Investors may position themselves for a rally in monsoon linked stocks in particular . Keep an eye on seeds , fertilizer and FMCG sector. With government efforts to build rural demand we expect an exponential growth at bottom of the pyramid.
Global sentiments are on mild risk off dose . This has more to do with
In lack of any major domestic triggers we can expect Indian equity market to follow global trends . The rate cut of 25 basis points disheartened the market .
Could RBI had been more aggressive ?
Probably No!! In India inflation will continue to take priority over growth , and rightly so . The recent rise in Oil prices is yet to percolate down in the inflation numbers . Also elections are not good for Inflation . The forthcoming state elections may lead to more unplanned expenditures for obvious reasons .
Traders may like to wait to see if the closing of 7520 breaks before initiating new shorts .
The jobs data from US has been better than expected . On the face of it , good news from the economy should be good for the stock market .
However will this data encourage the Fed to go ahead with increasing the interest rate in the next meeting ?
In India we will have the central bank (RBI) decide on interest rates this week . The financial markets has already factored in a 25bps rate cut .
How to play the interest rate move from RBI?
No rate cut ..>>> Market corrects
25bps rate cut >>>>> Markets remain stagnant
50 bps or more rate cut >>>>> Market moves up
With inflation under control and the Government trying to stick to its target of fiscal deficit , RBI should not have much problem in justifying a rate cut .
However with Oil prices moving up from their recent lows , RBI may not be too aggressive in the rate cut . This in turn may dampen the market mood !
It will be prudent to wait out the RBI action before taking any fresh positions on NIFTY trading . We may see a short spike today based on the market expectations of a strong rate cut . Day traders may take advantage of the same , with a strict stop loss and square off the position at today's closing.
The recent comments from Yellen has triggered a rally in risk assets. Dollar was lost ground against all the major currencies. Back in December when the Fed was talking about four rate hikes the market never believed .
However as on date the market seems to be factoring in no further rate hikes in 2016 . On one hand it brings all the major central banks across the world on the same plane . Now all the central banks seems to have recognized that the World growth recovery is feebly and needs more support.
In India stocks rallied in line with the global markets. We may see NIFTY rally to continue with intermittent profit taking . RBI rate cut will give the next support to this rally .
Traders should build on their long positions on the NIFTY .
Dollar may see some more correction in the current scenario .