The Indian stock markets had a good July. During the month, the benchmark index of share markets in India, Sensex, rose to 14,355 from 12,961. Not bad considering that the stock market in June fell from 16K levels to 13.5K levels.
Did the earnings season perform the trick? Yes, there were some earnings surprises on the positive side, especially from capital goods group but overall it was on expected lines. But it was oil, oil and oil. The global markets also witnessed some uptrend in July on the back of oil coming down to $120 levels.
Coming back to Indian stock markets, it would again be oil which would dictate terms in August, in the absence of major stock market related news. The earnings season is almost over, so also the rate hikes from the Reserve Bank of India. The central bank is not expected to hike the rates soon, given that they are now at a seven-year high.
Nor, the positive vibes of July is expected to be carried forward by the traders. The rollover of Nifty positions from July series to August series has been poor. The rollover to August has been in the mid-sixties as compared to lower seventies from June to July.
On the positive side for the share markets in India, August got an early boost, with the nuclear deal clearing the first hurdle in International Atomic Energy Agency. The capital goods stocks would be the biggest beneficiaries if the deal materializes. Already, L&T, JSW, BHEL and R-ADAG are readying their nuclear plans.
In the midst of the good news, don’t forget the inflation, which is still at a very high level and is unlikely to come down soon. The RBI governor hinted that inflation is going to come down only from the third quarter of this fiscal before dropping to 7 per cent by the fourth quarter.
The FIIs still seemed to be losing favour in the stock markets in India, with being net sellers in Indian equities in July, too. Domestic mutual funds on the other hand continue to be net buyers.
Another negative sentiment has been the progress of monsoon. Rainfall in July has been below average.
However, if the government is able to kickstart the stalled reforms process again, the Indian stock market could get a big boost. The IPO market particularly and the other PSU banking stocks would be the biggest beneficiaries of such a move. The Left parties had opposed to offloading stake in public sector banks, pension reforms and higher FDI limits in insurance.
Another contentious issue had been easing of norms for foreign banks. On the retail side, we don’t expect more reforms, particularly since elections are near and retail-side reforms could affect a large number of people, particularly the trading community. And this could further give a boost to the BJP.
The stock markets in India in August would veer between the positives and negatives. But the central point of the movement would be oil.
Author is an investment advisor and associate editor to stock market news India website. The website is committed to provide visitors with complete information on mutual funds in India. For more information visit http://www.ndtvprofit.com