Domestic equity markets to stay volatile, dip may deepen on Tuesday

A number of development from last week as well as that to come are likely to influence domestic equity markets, which are expected to open lower on Tuesday and remain volatile, thanks to lower GDP growth rate and weak auto sales numbers.

The stock markets will remain shut on Monday for Ganesh Chaturthi.

The US-China trade conflict and other global macros will act as triggers in the coming week. 

On Friday, finance minister Nirmala Sitharaman proposed a merger of 10 public sector banks into four to create fewer but stronger global size lenders. 

Meanwhile, official data released on GDP growth after market hours on Friday showed the growth slipped to a six-year low and settled at 5% in the April-June quarter of the current fiscal, against an expectation of 5.7%.

According to Siddharth Sedani, vice-president, equity advisory, Anath Rathi Shares and Stock Brokers, the GDP number was a “shocker”. 

That the economy is slowing down has been recognised by the government, which is working on boosting various sectors.

“On Tuesday, markets will be a little nervous to a downward trajectory. Nifty will remain range-bound and trade in 11,200 on the higher side and 10,800 on the lower. The US-China trade conflict is also a concern. Volatility in the domestic market will be persistent, unless we are having a good earnings quarter,” said Sedani, adding that the third quarter this fiscal is expected to be better. 

“The December is expected to be relatively better on three counts: base effect, positive monsoon will bring in good rabi season and banks will pass on RBI's rate cut which will benefit consumers and propel demand,” Sedani said.

Meanwhile, auto companies have reported poor sales for August. Tata Motors' sales fell 58%, Maruti Suzuki's 33%, Hyundai reported a 9% drop, and Honda Cars and Toyota Motors reported 51% and 21% decline respectively in August.

AK Prabhakar, research head, IDBI Capital, said auto numbers should not be compared on year-on-year basis till November, since growth was good last November, after which it started to tank.

“On a month-on-month basis or even on six-month basis, the numbers are not too bad. I feel things will start to stabilise,” Prabhakar said, adding that there is a slowdown in the economy linked to multiple factors, led by the credit stoppage.

“We have gone through a 'mini-Lehman' crisis without realising it. We are in a crisis situation but things are becoming better. To go back to normal, it will take six to nine months,” he added.

According to another analyst, the crisis in the financial sector has led to the economic slowdown.

“To address it, a lot more stimulus packages are needed than have been announced. The GST issue also need to be looked at. For the coming week, international triggers will be a driving factor apart from core industrial numbers and PMI data for the manufacturing and services sector,” the analyst said.