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

Will upcoming RBI policy meet change the mood at Dalal Street?

Modi magic saw 2014 becoming a great year for Indian stock markets, with the benchmark Sensex flaunting a prestigious tag of world’s second best major performing market. However, the mood at the Dalal Street Bulls seems to have dampened in recent sessions with foreign investors in pullback mode amidst the fury over the Minimum Alternate Tax (MAT).

Falling from a life-time high of over 30K in early March, the Sensex rally has lost steam, while volatility has heightened as tepid March corporate earnings numbers renewed skepticism over Asia’s third biggest economy, while stalled progress over two key bills pending in the Parliament i.e. Goods and Services Tax & the controversial Land Acquisition Reform have also tired investor appetite. The depreciation of the Rupee against its US counterpart, and forecasts of a below-par monsoon haven’t helped Dalal Street’s cause either. Spooked by concerns that the government will impose a 20 per cent MAT on capital gains over the past seven years, overseas investors seem to be in exit mode, keeping the Sensex below 28K.

The see-saw ride in the market has left the investors wary about the direction of Sensex. The much awaited interest rate cut by the RBI at its upcoming policy meet on June 2, 2015 can serve as a much needed mood lifter for Indian markets, with a 25 bps reduction on the cards amidst softening inflation. Consumer inflation, the RBI’s main inflation gauge, fell to a four-month low of 4.87 per cent in April 2015, remaining well below the 6 per cent goal for January 2016, while the government contained its fiscal gap for 2014-15 at 4 per cent of GDP, below the 4.1 per cent budget target, leaving ample scope for a third rate cut this year.

Moreover, the rupee has stabilized while foreign investors have been given immediate relief over MAT recovery with a government –appointed committee looking into the matter. Investors will eye progress over the GST and the Land Acquisition Bill which have been sent to a joint parliamentary panel for review after running into heavy resistance from opposition parties and allies, and are now likely to be passed in the Monsoon Session.

A timely monsoon would be a boon for the Indian economy and help bolster rural demand while keeping inflation under check. A slowing US economy has also pushed back bets of a rate hike, meaning that a flush of global liquidity owing to the Fed’s zero interest rate policy stance and record QE in Europe and Japan will continue to find its way into Indian markets.

Robust progress on structural reforms including easier tax norms and further interest rate cuts could power the Sensex back to 30,000 in the next few months.

Will Gold Regain Its Glitter?

All that glitters is not gold! Pegged back by a roaring dollar at multi-year highs, jitters over US monetary tightening and a global commodity rout, the yellow metal seems to have lost some of its luster, with the bullion extending its bearish ride into 2015.

Gold has shed over 1 per cent in the domestic market in 2015 as a stronger dollar bites demand for the bullion as an alternative asset by costing more to those holding other currencies. To add to the woes, the tremors of the oil price rout have also taken toll on Gold as investors fret over slowing global inflation, denting gold’s appeal as a hedge against rising prices.

However, the cloudy days for Gold may be over with the precious metal set to regain some of its sheen as an influx of global liquidity amid record QE injections from central banks in Europe and Japan and further easing from China bolster the bullion, a hedge against the inflationary risk of monetary stimulus. China has cut interest rates thrice in the past six months, with the latest reduction of 25 bps coming last Sunday, as policymakers look to stave off a worsening slowdown.

Moreover, doubts hover over the timing of a maiden US rate lift-off since 2006 with tepid Q1 growth and labour market slack prompting many analysts to pare back expectations of monetary tightening in the near-term, adding to the sheen of Gold, which tends to flourish in ultra loose monetary policy regimes.

Further, the greenback has also retreated from 12-year highs while oil prices are on their way up. Gold will also find comfort from safe haven demand as Greece stares at a potential default that could shake-up global financial markets, while the worsening situation in the Middle East, uncertainty over Iran-West nuclear pact, Russia-Ukraine tiff, will offer support to prices.

Another import element in the Gold story will be demand from India, the world’s biggest gold consumer. Shrugging off rupee depreciation and import curbs, the love affair between India and the precious metal remains strong as ever. Bullion imports soared to 125 tonnes in March from 60 tonnes in the year ago month.

Our verdict:  Bullion will Rise and Shine again amidst uncertainty over the global economic recovery and record cash injections from central banks.