Indices may rally on St in absence of triggers

Nifty once again made fresh highs last week but corrected in later part of the week to end with a weekly gain of 0.29%. Technically speaking, it formed a doji after three weeks of gain suggesting caution at higher levels. Mid-cap and small-cap indices however fell 1.4% to 1.9%, indicating aggressive profit taking in them.

Hopes rose last week for a possible interest rate cut by the Reserve Bank of India (RBI) after the sharp fall in CPI and after reports indicated that monsoon is expected to arrive on the Southern Kerala coast two days ahead of schedule. The goods and services tax (GST) Council finalising GST rates for the goods and services, further aided sentiment.

We entered the last two years of Modi Administration on May 17. Going by past history, in this period one can expect that government expenditure accelerates led by capex leading to rise in capital goods production sharply and Indian markets outperform due to pro-growth government focus.

US stocks finished out the past week with just a slight loss, after Wednesday's deep cut (worst session of the year) on concerns that Trump's Russia troubles could take a more serious turn. But by Friday, traders had stopped worrying about impeachment and were hoping a special counsel on the investigation would bring some calm.

In the coming week, we have the OPEC meet (May 25). The world will closely watch the OPEC's decision on whether to extend its current production agreement. US Federal Reserve (Fed) minutes (to be released on May 24) and speeches by Fed officials may help clarify the outlook for US interest rates.

May Futures and Options series will expire on May 25. Some scrip-specific volatility is expected even as scrips react to the corporate results being announced.

The coming week will bring in results announcement from ONGC, GAIL, IOC, HPCL, Sun Pharma, Lupin, Cipla, Torrent Pharma, Cadila, Tata Motors, Ashok Leyland, ITC. These stocks have decent weight in the Nifty/Sensex and have the capability to move them in a material way, post the announcements.

While the Indian market's valuation is close to the upper 'limit' of its historical trading range except for the 'euphoria' phases Jan 2008 and March 15, there are no immediate negative local triggers to trigger a sharp fall. There is a clear opportunity for long-term investors to participate in India's much awaited macro recovery. Investors have to be careful to space out their purchases by way of systematic investment plan, or otherwise.

The writer is head – retail research, HDFC Securities.

...& ANALYSIS

• This week, OPEC’s decision on whether or not to extend its current production agreement, will be watched
   
• May Futures and Options series will expire on May 25. Some scrip-specific volatility is expected
   
• Results of ONGC, Gail, Tata Motors, Sun Pharma, Lupin, Ashok Leyland, among others will come this week