D-Street’s Good Days on the way back!!

After a sluggish start to the year, Dalal Street has regained its mojo with the 30 –share benchmark Sensex notching up an eight-day winning streak in early June as fears of a below par monsoon seem to have abated, while optimism over Greece and delayed  US monetary tightening hopes have boosted the lure of emerging market equities.

The Indian markets are relieved that the monsoon is currently on the right track encouraging rural demand and improving hopes of another round of rate cut by the Reserve Bank of India amid softening inflation.

Further, a global stock rally coupled with new reform proposal by Greece has raised the market’s expectations that a long-awaited deal between debt-burdened Greece and its creditors is firmly taking shape, putting an end to the five-month long deadlock and averting a dreaded breakup of the 19-member Euro.

The Indian markets have another reason to cheer as Fed signaled a dovish stance at its June meet indicating that the pace of rate hikes would be gradual. Fed's new interest rate stance would reduce the outflow of funds from Indian markets and thus maintain liquidity in the Indian markets. This will also limit the US dollar's surge against the Indian rupee, thereby improving India's risk-reward ratio among emerging markets.

CNX Nifty - Is This The Bottom?

CNX Nifty has been heading lower since its peak in March 2015 at 9119 level. Its been nearly 66 days that the index has declined to its 2015 lows of 7958 level. The number 66 plays an important role in technical analysis as it is two third of 100%. In addition to this, the index has completed an Anti Shark bullish harmonic pattern. The PRZ of the pattern is 7933 - 7971 levels. In addition, we can also see a 'Last engulfing bottom' candlestick pattern, which indicates reversal in short term. The index is expected to bounce back to 8300 level until and unless it holds above 7850 on closing basis.

LM's Technical Insights!!

CNX Nifty after drifting lower from the peak of 9119 in early March'15 has corrected all the way near to 8000 level. At this juncture the index is near to its major support trend line constructed by joining the lows of 17th December'2014 and 07th May'2014. The index at this support has formed a morning star reversal candlestick pattern along with positive crossover in RSI momentum oscillator. Moreover, this is the third point on the trend line which is a Fibonacci number. Considering these technical evidences it is evident that a short term bottom is in place and the index may head higher towards 8450 levels.  

Esocrts - Are tractor sales getting better?

Escorts Anti Cypher (Bullish)

RBI Delivers But Sings A Hawkish Tune.

As expected, in its second bi-monthly policy review of the new fiscal, the Reserve Bank of India (RBI) obliged with a much needed rate cut, with the repo rate slashed by 25 bps, the third such reduction in 2015.

The repo rate was cut to 7.25 per cent from 7.50 per cent while CRR was kept intact at 4 per cent. The case for a rate cut this time around was quite strong given the pullback in inflationary pressures thanks to a softening commodity price cycle that pushed consumer inflation, the RBI’s most watched gauge to a four-month low of 4.87 per cent in April 2015.

Moreover, Raghuram Rajan, the RBI Governor doesn’t seem to be too convinced over the strength of the economic recovery as he warned over tepid investment and demand, a fact evident by the dismal March quarter report cards delivered by India Inc., vindicating the rate cut verdict.

Further, Rajan also stressed against reading too much into the March GDP numbers that showed the economy grew 7.5 per cent, outsmarting China’s 7 per cent. However, the headline GDP figure may be subject to distortions while tumbling exports, a dip in April core sector output, and a slowdown in Gross Value Added to 6.1 per cent in the March quarter from 6.8 per cent in December quarter, signaled that the economy was in need of further stimulus support.

The rate cut would act as a catalyst for growth as falling interest rates aid a credit pickup and bolster a capex rebound. Softening interest rates would be a boon for rate-sensitive sectors such as banks, auto, realty and capital goods, with housing and auto loans likely to get cheaper, bolstering consumer appetite while lower credit costs may help stalled infra projects to take off.

That is where the good news ends with the RBI signaling a long pause before another rate cut as it warned of upside risks to inflation including a below par monsoon (now downgraded to 88 per cent of the Long Period Average) that can prop up food inflation, a rise in oil prices and heightened external volatility.

Rajan’s outlook for further policy easing summed up by his words “conservative strategy would be to wait” clearly indicate that this was probably the last rate cut for quite some time. However, if the rain Gods are kind to us and the Monsoon tops forecast, while the government continues strongly with its fiscal consolidation progress, we won’t have to wait longer for another rate cut.

Image Courtesy: Google