BackTroubles mount for the Indian markets; may not be easy to overcome
The coming week is crucial because investors will be watching the debt fund market for further developmentsSome banks are expected to report their Q4 results; commentary on recoveries will influence market direction.
PremiumWith debt funds rattled by the shutdown of six Franklin Templeton’s debt fund schemes and other debt funds whittling down their net asset values, the Indian markets may be heading into choppier waters. Stock markets fell last week despite the positive news coming from Jio Platforms. The markets could not sustain higher levels, losing about 112 points on the Nifty 50.
Nevertheless, the coming week is crucial because investors will be watching the debt fund market for further developments. Some banks are expected to report their Q4 results. Commentary on recoveries will influence market direction.
Another headline indicator to watch is the Indian manufacturing PMI which will be announced towards the end of next week. The moot question is how badly has the lockdown affected Indian manufacturing and supply chains.
After a decent March when the PMI still showed expansion, the economy on the ground has come to a grinding halt. Some wheels are moving, particularly essential services. Hence, a huge dip in manufacturing activity could be on the cards.
Of course, globally, governments have managed to stave off a full-blown financial crisis with a total stimulus of $8 trillion. Some of that has rubbed off on the Indian markets with many of the Nifty 50 stocks posting decent gains in the past month. However, given that the increase in coronavirus cases is extending the lockdown in many parts of the country, stocks could still exhibit volatility if the situation worsens.
Some conditions of the global market are also not quite encouraging with unemployment shooting up in the US and the Eurozone still bogged down with the coronavirus. One can see the impact of the slowdown in Hindustan Unilever Ltd’s parent company Unilever Plc. Volumes were flat with a growth of just 0.2% in the March quarter.
Further signs of global economic stress will be seen in shrinking remittances in the coming year. World Bank estimates they could shrink by 20% while remittances to India could plummet 23%.
Back home, domestic steel manufacturers are going through hard times with dismal volume growth. Tata Steel Ltd’s Q4 sales plunged 15% year-on-year as covid-19 restricted construction and manufacturing activity.
Facebook, Inc’s deal to buy 9.99% stake in the Reliance Industries Ltd’s Jio Platforms Ltd did have a positive effect on markets. Reliance Industries Ltd added to its market value post the deal.
Another positive is the pharmaceutical sector's popularity. The Nifty Pharma index is the only one that has delivered positive returns of 18.4% in 2020, against all indices posting negative returns. The US FDA’s recent approvals and clearances for some of India’s manufacturing units have had a positive effect. Aurobindo Pharma Ltd was the latest to get a clean chit from the US FDA pushing its stock up.
Coming back to markets, foreign investors continue to pull out. In April, foreign portfolio investors pulled out about ₹6861 crore, provisional numbers show. But more worrisome is that domestic investors have turned net sellers for the first time this year in April. Markets must now be able to absorb selling pressure, or investors may end up disappointed.
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