Markets likely to go up further

Markets likely to go up further
Highlights

In a truncated week, the benchmarking stock market indices gained further ground on hopes of an interest rate-cut and supported by sustained buying from the foreign institutional investors (FIIs). The BSE Sensex logged its straight fourth weekly gain when it rose by 384 points to have scaled above 25K-mark again. 

Banking, NBFC shares are expected to shine if RBI goes for rate cut

In a truncated week, the benchmarking stock market indices gained further ground on hopes of an interest rate-cut and supported by sustained buying from the foreign institutional investors (FIIs). The BSE Sensex logged its straight fourth weekly gain when it rose by 384 points to have scaled above 25K-mark again.

The markets during the week had only three trading sessions ending Wednesday as they were scheduled to remain closed on Thursday and Friday on account of Holi and Good Friday respectively before the regular weekend. In view of lesser trading days and fast approaching expiry of derivative contracts, besides the usual anxiety over the long week-end holidays, the volume of business was low in most of the scrips and therefore, price fluctuations were narrow throughout the week.

After most of the global central banks coming out with some sort of fresh relief packages including policy interest rate cuts and the US banking regulator, Federal Reserve, once again adopting a dovish stand in the matter of interest rate hike, the hopes of the Reserve Bank of India coming out a rate cut when its board meets on April 5 became stronger.

And since the government also came out with a cut in interest rates on various saving schemes, a rate-cut was considered almost certain until the RBI Governor came out with an opinion that suggested that it was still not very keen on cutting the lending rates in its ensuing policy meeting. Thus, though the hopes of RBI rate cut dampened a bit, the markets still ended in green as the FIIs were buying in huge quantities every passing day.

Thus, though the pace of the markets going up was greatly reduced every day as displayed by the BSE Sensex which gained 333 points on Monday, rose by only 45 points on Tuesday and just 7 points on Wednesday, it did not end in the red on any single day as global news continued to be supportive and the Indian government also came out with some or the other positives for the markets. An interest rate cut on various saving schemes was viewed as a fore-runner for a similar stance to be adopted by the banking regulator.

The government also announced a six per cent hike in dearness allowance for its employees and pensioners effective from January this year. This move is expected to provide an additional purchasing power in the hands of the middle class. This coupled with the huge impetus provided to the rural development through its budget is expected to generate huge demand for consumer goods including fast moving goods.

The fund flow to be pumped into the hands of rural masses and urban middle class, is ultimately going to be reflected over the increased turnovers of the corporates. With the union government hiking dearness allowance and increasing salaries as recommended by the Seventh Pay Commission, many of the state governments will also follow suit and provide further boost to the demand for produced goods and thus create a cascading effect on the economy.

This, coupled with a likely better monsoon this year as the El Nino effect is said to have been over, would certainly make the Indian stock markets bullish by nature and in case the government also succeeds in getting the GST bill cleared in the Rajya Sabha, then both these could make the markets flare up in the weeks to come. The news from foreign countries is also positive as Chinese economy is gradually on recovery path and the European markets are also turning strong and have closed higher even after a terrorist attack on Belgium.

It is therefore most likely that the markets could go further up in the week commencing today despite expiry of derivative trades fast approaching. It would be bear operators who would make them go up by covering their short positions in view of improved possibility of an uptrend in the markets.
Since, the government has played a game to revive economy by empowering rural masses, the demand for fast moving consumer goods and white goods besides two-wheelers, is likely to go up.

Tea and sugar are also expected to firm up in the days to come and therefore, tea and sugar company shares are expected to rise. Banking and NBFC sector shares are likely to shine further up if the RBI cuts policy rates on April 5. However, in this segment, investors will need to tread highly cautiously and be very choosy as the segment is extremely hit by NPAs. Instead, they could look at investing in segments that are based more on agrarian economy and especially agri-dependent industries such as seeds, fertilizers, pesticides and so on.

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