West Singhbhum: Security personnel stand guard as people wait in queues to cast their votes at a polling booth during the fourth phase of Lok Sabha elections, at Chaibasa in West Singhbhum district, Monday, May 13, 2024.
Credit: PTI Photo
This truncated week would see the domestic market reacting to voter turnout in the 5th phase of polling. It is light on the economic calendar front with just US PMI and home sales data along with UK inflation data set for release.
Earnings season on the other hand will reach its final leg with many mid and small cap companies announcing their results. Thus, a lot of stock specific action will be seen this week. However, concerns regarding consistent FII selling, India VIX still above 20 levels, outcome of general election could keep volatility higher.
Last week domestic equities saw some pullback from lower levels after retail inflation eased in April and short covering was seen in the market. Nifty gained 411 points (+1.9 per cent) to close at 22466 levels. Broader market bounced back more strongly with Midcap100/Smallcap100 up 4.2 per cent/4.7 per cent. Except for FMCG all sectors ended with gains. Realty and metals rallied more than 6 per cent each followed by 3-4 per cent in energy and infrastructure. Metals gained following a cool-off in US dollar index to one-month low and strong metal prices in the global market. Realty stocks rallied post strong results posted by real estate players and price appreciation seen in key metros in Q4. Railway & defence sectors rallied this week on the back of robust Q4 results.
The revival in the market was supported by cool off in inflation of both India and US. India’s retail inflation eased marginally to an 11-month low of 4.8 per cent in April. While US inflation eased to 3.4 per cent vs 3.5 per cent in March, cooling off for the first time in the last 6 months and core inflation fell to a 3-year low. This led to sharp fall in treasury yields and the US Dow Jones touched the 40k mark for the first time, as the investors’ hope for rate cuts rekindled.
Sentiments also got a big boost after IMD predicted the early arrival of the southwest monsoon over Kerala. In addition, improved voting percentage in the fourth phase of polling has revived hopes for a favourable election outcome. MSCI quarterly rebalancing on May 31 is set to increase India’s weightage from 18.3 per cent to 19 per cent, which could lead to possible FII inflows worth about $2.5 billion.
Foreign institutional investors continued their selling spree as they sold shares worth more than ₹12000 crore this week. However, they continued to hold significant short positions in the index futures, which may be covered at some point in the future as the long-short ratio stands at ~26 per cent. Domestic institutional investors, on the other hand, continued their buying spree and bought ₹13000 crore during the week. This too provided support to the market
(The author is Head – Retail Research, Motilal Oswal Financial Services Ltd)