Post RBI policy, markets to focus on GST, US election, Q2 results

Analysts also remain mindful of the geopolitical situation that has the potential to dampen sentiment; remain cautious on rate sensitive stocks

Markets gave a lukewarm response to the Reserve Bank of India’s (RBI’s) decision of slashing repo rate by 25 basis points (bps) to 6.25%. The S&P BSE Sensex hit an intra-day high of 28,404; while the Nifty50 index hit day’s high of 8,783 levels. Both the indices, however, trimmed gains to end at 0.4% higher at 28,334 and 8,769 levels, respectively.

A runaway rally, analysts say, was ruled out as themarkets had already priced in a 25 bps rate cut given the fall in consumer price inflation (CPI) to 5.1% in August. Going ahead, they expect the focus to shift to corporate results and the progress on the implementation of the GST(goods and services tax) bill.

“Markets were expecting a rate cut on Tuesday, and we saw a good rally a day earlier in anticipation of this move. With the rate cut done, markets will now focus on developments regarding the GST. The second quarter results (Q2FY17) of India Inc and the US Presidential elections will also impact sentiment going ahead. In this backdrop, I expect the Nifty to remain range-bound between 8,500 – 8,700 levels,” said U R Bhat, managing director, Dalton Capital Advisors.

That apart, analysts do remain watchful of the developing geopolitical situation between India and Pakistan. Though experts do not expect the conflict to flare up, they remain watchful of the developments, which have the potential to dent market sentiment and impact foreign fund flows into the Indian markets.

“The recent geopolitical development has made investors cautious. Having said that, I reiterate that India’s macro-economic situation within the emerging markets remain strong. In this backdrop, I suggest investors look at large-cap stocks, especially the defensive plays like ITC, Lupin and Infosys. I feel the next leg of the rally will be driven by these defensive stocks,” cautions G. Chokkalingam, founder & managing director at Equinomics Research & Advisory.

Investing strategy

Going ahead, analysts believe that room exists for future rate cut; albeit the timing would be data dependent and may gauge for the US Federal Reserve’s (US Fed) stance, and for the 7th pay commission pay-out impact. However, given the recent rally and rich valuations of the interest rate sensitive stocks, they suggest investors be cautious and invest selectively.

Jayant Manglik, president – retail distribution at Religare Securities recommends a ‘buy on dips’ approach and advises investors to remain specific front till consolidation continues in Nifty.

“Among rate sensitive pack, NBFCs are leading from the front followed by auto and banking and we believe this trend will endure in short run so plan your trades accordingly,” he says.

Since the start of the market rally in March 2016, Nifty Auto, Nifty Bank and Nifty Realty indices have outperformed the market by rising 45%, 41% and 61% respectively, as compared to a 25% rally in the benchmark Nifty50 index till Monday.

“Last few days’ short covering rallies left little room for further upsides after the monetary policy delivered a unanimous verdict to cut rates. The changed timing of the announcement also meant that as soon as the rate decision sunk in, global dynamics gained upper hand, putting a lid on further upsides. Markets also chose to take profit as the second half of the week is likely to see focus shifting to US jobs data; and with pound slumping, Brexit worries would also put IT sector and auto ancillaries in focus,” said Anand James, Chief Market Strategist, Geojit BNP ParibasFinancial Services.

Within the banking space, Chokkalingam recommends Axis Bank and Karur Vysya Bank and dividend yield stocks in the mid-cap space.