Fundamental

Overview

• The main Indian stock indices advanced modestly, hitting new record high levels amid persistently positive FII inflows and on hope of positive outcome in general election.

• India's March exports were down 3.1% YoY at US$29.58bn while imports were down by 2.1% at US$40.08bn, leading to a trade deficit of US$10.5bn.

• India's trade deficit for FY14 stood at US$138.59bn compared with US$190.34bn in the previous year.

• The yield on India’s 10-year benchmark bond touched 9.109%, the highest level since 19th August 2013.

• Shares of Sun Pharma were in focus after the company said that it would acquire Ranbaxy Laboratories for US$3.2bn.

• Cement shares firmed up on hope of some consolidation in the Indian market after global giants Lafarge and Holcim decided to merge.

• The latest US jobs report showed fewer-than-expected jobs in March, prompting some traders to delay expectations of the first rate hike.

• The US created 192,000 jobs in March while hiring in January and February revised higher. The unemployment rate remained unchanged at 6.7%.

• Jobless claims fell to nearly a seven-year low but some economists said that there is often a lot of variation this time of year that might affect the jobs market.

• US volatility index jumped 17% on Thursday while the Nasdaq suffered a 3%, triple-digit drop; Dow tumbled 267 points on the same day.

• The minutes of the latest Federal Open Market Committee (FOMC) meeting showed that Fed officials had a secret video conference call in early March and reached a general consensus that the 6.5% unemployment rate threshold for the first rate hike was outdated.

• IMF slashed its global growth forecast with IMF Chief Economist Olivier Blanchard saying that sluggish Eurozone growth, volatility in emerging markets (EMs) and geopolitical tensions over Ukraine threaten the ongoing fragile global economic recovery. Emerging market shocks could also rattle the developed economies, IMF said.

• China swung to a trade surplus of US$7.71bn in March, as imports fell 11.3% versus year-ago level and exports were down 6.6% YoY. Separately, data showed that China’s wholesale prices fell 2.3% in March while consumer prices were up 2.4% in March.

• German exports slumped more than forecast in February while UK exports of goods were the weakest in three years.

• Greek yields fell below 6%, the lowest level since 2010, as the debt-stricken Eurozone nation returned to the bond market after four years.

• The Bank of Japan held its monetary policy unchanged, as expected.

• The Bank of England kept its policy rates steady at 0.5% and QE unchanged.

This Week’s Market Round-Up - Sensex & Nifty rise by 1% each on week...

• The BSE Sensex and the NSE Nifty were both up by ~1.20% each during the week.

• The BSE Mid-Cap index climbed by ~2.0% and the BSE Small-Cap index jumped ~3.6%.

• The NSE Bank index rose by ~2.30% and the INDIA VIX closed near ~29.0.

• JP Associates, Reliance Infrastructure, Sun Pharma, NMDC and Ambuja Cements were the top five gainers in Nifty this week.

• Jindal Steel, Hero MotoCorp, Lupin, Dr. Reddy’s and Infosys were the top five laggards in the Nifty this week.

• Kingfisher Airlines, NCC, Gujarat Gas, BEML and Gujarat NRE Coke were the top gainers of the week in the BSE 500 index.

• Just Dial, Info Edge, Siti Cable, ABG Shipyard and Radico Khaitan were the notable losers in the broader market this week.

• In terms of sectors, Airlines, Construction, Gems & Jewellery, Cement and Power were the main winners of the week.

• Sugar, Retail and Media sectors were the notable losers.

Market Outlook - Bullish in Short-Term; Bullish in Medium-Term...

• We see Indian stocks extending recent solid gains in the medium- to long-term if the outcome of upcoming Lok Sabha elections is favourable and the new Government starts to address the imbalances in the economy. Global markets will continue to track the ongoing economic recovery in the US, concerns over slowdown in China and deflation fears in the Eurozone.

• The RBI, in its last monetary policy review decided to keep the policy Repo Rate unchanged at 8.0%. The RBI said that its policy stance is firmly focused on keeping the economy on a disinflationary glide path that is intended to hit 8% CPI inflation by January 2015 and 6% by January 2016.

• The RBI said that at the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013 through January 2014 to work their way through the economy. Furthermore, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated.

• Real GDP growth is projected to pick up from a little below 5% in FY14 to a range of 5-6% in FY15 albeit with downside risks to the central estimate of 5.5%. “Easing of domestic supply bottlenecks and progress on the implementation of stalled projects already cleared should contribute to growth, as will stronger anticipated export growth as the world economy picks up,” the RBI said.

• Looking ahead, vegetable prices have entered their seasonal trough and further softening is unlikely, the central bank said. There are also risks to central forecast of 8% CPI inflation by January 2015, the RBI said. These risks include a less-than-normal monsoon due to possible El Nino effects; uncertainty on the setting of minimum support prices for agricultural commodities and the setting of other administered prices, (especially that of fuel, fertilizer and electricity); the outlook for fiscal policy; geo-political developments and their impact on international commodity prices.

• The RBI added that there will also be a downward statistical pull on CPI inflation later this year, due to base effects from high inflation during June-November 2013. “It is critical to look through any transient effects, including these base effects, which could temporarily soften or harden headline inflation during 2014,” the RBI said.

• In pursuance of the Dr. Urjit R. Patel Committee’s recommendations, the RBI decided to increase the liquidity provided under 7-day and 14-day term repos from 0.5% of net demand and time liabilities (NDTL) of the banking system to 0.75%, and decrease the liquidity provided under overnight repos under the LAF from 0.5% of bank-wise NDTL to 0.25% with immediate effect.

• The primary objective is to improve the transmission of policy impulses across the interest rate spectrum, the RBI said.

Sectoral Outlook - Bullish on IT, bearish on PSU banks...

• BFSI - We remain bearish on PSU banks sector as we expect the on the asset quality side to prevail for a while. On the other hand, we like select Private Banks.

• Automobiles - Our outlook is neutral to positive. We expect revival in FY15 due to good monsoon, resilient rural demand, improved policy climate and election-related spending. Meanwhile, tractor growth has been strong in FY14 on the back of satisfactory monsoon.

• Capital Goods - We are neutral to Bullish on this sector in medium to long run as we are near the bottom of the cycle and expect revival in capex cycle towards the second half of FY15. With the government adopted various majors towards clearing projects stuck at various stages, the demand for capital goods is expected to revive in the longer run.

• Cement - Our call on the Cement sector is bearish as demand is likely to remain subdued till there is a pickup in the overall economic activity.

• Consumption - Although persistently high CPI inflation and slow income growth has hurt consumer demand for the past few months, there could be some revival in this space if CPI inflation abates and borrowing costs starts to fall. Rural consumption could get support from good monsoons and election-related Government spending.

• Infrastructure - We are neutral to Bullish on this sector from a long-term perspective. Recent initiatives adopted by the Government in terms of fast tracking project clearances would revive investments in the infrastructure sector. Besides, RBI keeping interest rates steady and expectations of rate cuts in the long run would reduce the financing cost of the projects.

• IT - We are Bullish on this sector as growth in the US economy is picking up and last year’s sharp fall in INR vs USD is also aiding overall margins.

• Real Estate - We are bearish on this sector. Slow demand environment in most markets have impacted sales. Stressed balance sheets of the realty companies have also hit their performance.

• Pharmaceuticals - Pharma companies continues to do well in the export markets, and the rupee depreciation would further help them report better margins.

Outlook:

• Markets will react to the latest IIP numbers and inflation data to be released next week. Infosys’ Q4FY14 result on Tuesday will be a key driver for IT stocks. Indian markets will be shut on Monday on account of Dr. Ambedkar Jayanti. Global developments will also partly exert some influence on Indian markets’ sentiment.

Technical

Round-up: New life high...

• Nifty started the week with positive note and made fresh new life high of 6820. However, market saw some profit booking at higher level and finally Nifty Index closed with 1% W-o-W. Indian markets have outperformed global markets where most of the indices in US and Europe seeing selloff.

• Metals and Banks sector showed strong gains while FMCG remained on looser side.

Nifty Outlook: Uptrend to continue...

• After making fresh life high last week, market saw some profit booking in last trading day of the week.

• Technical oscillators on daily chart are trading in overbought zone.

• Nifty Index is still trading above its short term moving averages which indicates momentum o in the market is positive.

• Going forward we expect nifty to continue its uptrend and test 6900/7000 in short term.

• Our current short term outlook is Bullish.