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What to watch out for in the markets this week

LiveMint logoLiveMint 06-03-2017 Nasrin Sultana

Mumbai: After a tumultuous week, investors are likely to be cautious ahead of major domestic and global events lined up ahead. Despite euphoria driven by positive sentiment on steady December quarter gross domestic product (GDP) and a bout of liquidity, the market fell short of hitting an all-time high last week. Analysts said that investors are getting a bit anxious due to state election results and the US Federal Reserve meet on interest rates.

For the moment, however, the markets are likely to react positively as implementation of the most-awaited taxation overhaul, goods and service tax (GST), has moved a step ahead. Last weekend, the GST council approved the draft of key supporting legislations signalling roll-out of GST from 1 July. The council passed the final drafts of Central GST (C-GST) and Integrated GST (I-GST). In its meeting on 16 March, approval for State GST and Union Territory GST (UT-GST) will be discussed. Union finance Minister Arun Jaitley has said that the bills are set to be discussed in Parliament between 9 March and 12 April.

Analysts, however, feel that the market momentum may be arrested due to anxiety ahead of election results on 11 March with exit polls due on 9 March.

“The market is in no big hurry to move before the outcome of state elections, which will give a signal to FPIs (foreign portfolio investors) and domestic investors to commit fresh funds. The market is likely to remain in a range-bound zone. However, the undercurrent of the market is strong,” said Jimeet Modi, chief executive officer, SAMCO Securities.

All action will be in the primary markets on Monday, as a bunch of initial public offers (IPOs) are lined up in March. The second issue of the year, after BSE IPO, Jagran Prakashan’s subsidiary Music Broadcast, will stay open from 6-8 March and is priced at Rs324-333 per share. Proceeds from the IPO will be used to clear debt of the company which is seen as a positive as it will reduce finance costs allowing other income to rise. Analysts say that valuation of the issue is attractive.

Next in queue is supermarket chain D-Mart owner Avenue Supermarts’s Rs1,870 crore issue, which will open for subscription on Wednesday. The issue is priced at Rs295-299 per share.

On the macro front, index of industrial production (IIP) data for January will be released at the end of this week. Industrial output in December fell 0.4% after a 5.6% increase in the month-ago period.

Globally, the markets are gearing up for an interest rate hike in the Federal Open Market Committee’s meet on 14-15 March. Last Friday, Fed chair Janet Yellen said a rise in US interest rates could be “appropriate”. She had also indicated Fed may raise rates more quickly than over the past two years.

Brokerage firm Angel Broking feels that a hawkish US Federal Reserve may prompt commodity bears. “Probability of rate hike this month jumped nearly 78% to about 82% as per the CME’s Fed funds futures. This would provide an additional boost to global equities which are already at record highs and pull investors away from commodities, especially the safe haven gold,” noted Prathamesh Mallya, chief analyst, non-agri commodities & currencies, Angel Broking.

Morgan Stanley said emerging markets are better able to withstand a gradual increase in US rates. “However, some EMs have made less progress on reducing their external macro imbalances and are more likely to be impacted negatively,” it added in a note.

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