Most of the major events scheduled for this month are now behind us with the IIP data (downside surprise), inflation (upside surprise) and the RBI policy (no surprise) getting over today. Under the circumstances the movement of the markets till the end of the month again goes back to that of following global cues. The advance tax numbers did not show any negative or positive surprise either. As such it is more important to analyze and get a hang of what’s happening globally and its impact on the Indian markets.
Globally the main theme seems to be of slowing growth with economic numbers deteriorating for the
My key call for the last two months has been for a commodity correction, which seems to be half way through at this stage. The US Dollar is looking increasingly bullish technically and could see levels of 77.5-78 in terms of the USD Index going forward. A combination of strengthening USD and slowing global growth is likely to weigh heavy on commodity prices. We have already seen crude oil prices come down to levels that are below those at the time of the start of the Libyan crisis. This is despite no resolution to
The key is that in a scenario where commodities are correcting sharply due to growth concerns, can the stock markets rally? The biggest problem that
July is also the results season and it will also provide an opportunity for investors to take a more informed call on the outperformers of the next rally. As things stand today in the markets we see the markets demarcated into two different pockets. The first is that of defensive stocks that have become institutional favorites. In case of these stocks the valuation are at a P/E of 25 to 50. On the other side is rest of the market where valuations are at 10 to 15 times for large caps and 5-10 P/E for mid caps. My guess is that as interest rate and inflation concerns peak out we will see a large number of cyclicals and growth stocks start to outperform as valuations are cheap and earning visibility will come back.
In terms of an overall view it still looks like the February/ March lows should be a good durable bottom for the markets for a strong rally into the second half of the year.