Markets next week: Corrections an opportunity for long-term buys

An upbeat start saw some sharp gains for the Indian stock markets but a correction towards the end of the week wiped out most intra-week gains in contrast to global indexes. Concerns lingered over more tariffs and trade barriers from the United States that could result in trade wars and India may not remain insulated. Further, fears over a potential hike in global interest rates and its impact on markets are also unnerving investors.

Political developments also kept markets nervous as the ruling Bharatiya Janata Party (BJP) faced new challenges. Discontinuation of LoUs, LCs as instruments of trade credit by the Reserve Bank of India also dampened sentiment as international business may suffer.

For the week, the Nifty ended down 0.3 percent. However, the broader markets outperformed with the mid- and small-cap indexes gaining about 1.5 percent each.

Crude oil prices were largely flat during the week after the International Energy Agency (IEA) said global oil demand is expected to pick up this year, but warned that supply is growing at a faster pace.

On the currency front, the rupee ended the week at 64.93 per dollar as against 65.16 the previous week. With the Fed policy next week and a possible $60 billion trade levy on China by the Trump administration, one needs to see the reaction.

Globally, the U.S. tariff issue continued to worry investors. The White House also said that the Trump administration wanted China to reduce its trade surplus with the United States by $100 billion. Trump replacing Rex Tillerson with Mike Pompeo as U.S. secretary of state spurred concerns about a unilateral approach to trade, national security and foreign affairs.

Back home, key alliance partner TDP quit citing an unfavourable response to its budget demands. Although the move is unlikely to have any effect on the BJP-led government, the markets were sentimentally impacted keeping in mind the 2019 election.

Meanwhile, RBI Governor Urjit Patel expressed his displeasure over bank fraud and regulators' inability to check its occurrences. The spat between the finance ministry and the RBI also played its role in dampening market sentiment.

On the stock-specific front, investors gave a thumbs-down to Tata Sons' TCS stake sale decision to pay creditors of its wireless division.

Ambuja Cements and ACC proposed to enter into a master supply agreement. The markets took the news well, as investors believe this will help both cement makers to reduce costs and drive faster volume growth, despite remaining separate entities.

InterGlobe Aviation, the owner of IndiGo, was in the spotlight after India’s aviation regulator directed IndiGo and GoAir to ground A320neo aircraft fitted with faulty Pratt & Whitney engines.

Punjab National Bank remained in focus after the lender detected another fraud worth 90 million rupees at its Mumbai branch.

On the IPO front, this week saw three major IPOs namely Bharat Dynamics, Bandhan Bank and Hindustan Aeronautics tapping the primary markets. Defence PSU Bharat Dynamics received a lukewarm response and the issue has just managed to sail through, whereas the other two are still open for subscription.

On the macro front, WPI inflation grew at its slowest pace in seven months in February due to easing in food prices. This is in line with expectations. However, an unfavourable base effect for crude petroleum and natural gas, and fuel and power is likely to push up WPI inflation in March.

IIP recorded strong growth for the third straight month at 7.5 percent in January, while retail inflation dipped to a four-month low of 4.44 percent in February. This will allay fears of an interest rate hike by the RBI in its April policy meet.

For the coming week, the Fed’s highly anticipated FOMC rate decision, policy statement for outlook on further hikes, and economic projections will be watched in the March 20-21 meeting. The Bank of England rate decision on Thursday will also be in focus. Other events in the week ahead include the G20 meetings in Argentina.

The stock market fall in the second half on Friday clearly shows that market participants are extremely edgy. The market in the last few weeks has moved from “buy on a correction” to “sell on a rally”. However, a further sharp correction from here could give discerning investors a great opportunity to deploy funds for the long term.