Markets to remain volatile; monsoon, Greece to set tone

Movement of rupee and crude oil prices will also dictate the trend

The benchmark indices snapped a three-week losing streak due to encouraging macroeconomic data, easing monsoon worries and a strengthening rupee. A dovish US Federal Reserve stance also eased concern over slowing foreign fund inflows.

The markets posted their highest weekly gain in five months, helped by a stupendous rally in the shares of India's second-largest company by market value, Reliance Industries, which jumped 12 per cent on continued optimism about the company's plans to start 4G phone services in December.

In the week ended Friday, the Sensex regained the psychological important 27,000-mark and ended up 891 points, or 3.4 percent, at 27,316. The National Stock Exchange’s Nifty also reclaimed the crucial 8,000-mark and settled with gains of 242 points, or three per cent, at 8,225.

However, the broader markets underperformed the Sensex. The BSE midcap index ended at 10,487, higher by 365 points or 3.4 per cent and the BSE smallcap index ended at 10,943, up 369 points or 3.5 per cent.

Market view

“To break strong pessimism, you need extremely strong optimism and that is exactly the way the performance of the Indian markets were last week, with a thumping three per cent positive closing for the Nifty. A strong comeback by RIL (hitting the 1,000-mark again), Nifty futures coming back to Premium and positive movements of Bank Nifty were couple of key reasons for such a strong rally" said Kunal Bothra, head - advisory, LKP Shares & Securities.

“Going into the next week, we have global events such as Greece outcome, which could drive the markets. Also, being an expiry week, volatility is expected. However, if 8,150 holds on closing basis for the Nifty (spot), we believe the trend would continue to remain positive. The rally can further extend towards 8,350-8,400, but with higher degree of volatility” he added.

Key events

Investors were enthused by the macroeconomic data. India's industrial production in April accelerated by 4.1 per cent, against 2.8 percent a year ago on the back of 5.1 per cent growth in manufacturing and 11.1 per cent expansion in capital goods.

The wholesale price index (WPI)-based inflation in May stood at -2.36 per cent, compared with -2.65 per cent in the previous month on the back of dropping oil and manufacturing goods prices. However, consumer price index (CPI)-based Inflation edged up slightly to 5.01 percent in May, from 4.87 percent in April due to untimely rains in February and March.

Trade deficit in May contracted to $10.4 billion, against $11 billion in April largely due to falling gold imports. However, the total trade deficit expanded to $21.39 billion during April-May, against $21.32 billion over a year.

The rupee ended at a one-month high of 63.56 against the dollar tracking gains in the stock market.

On the global front, the US Federal Reserve kept the benchmark federal funds rate unchanged at zero during their regular policy meeting and indicated that rate hikes would be gradual. Tracking it, all Asian equities, barring Chinese market, ended with gains. China's benchmark index Shanghai Composite cracked 13 per cent, as the tight market liquidity caused by new share listings triggered a heavy sell-off across the counters.

Monsoon

According to the India Meteorological Department, the monsoon is likely to remain strong in June, promising widespread rain across central and south India. The cumulative rainfall during this year's monsoon season was 11 per cent above the Long-Period Average (LPA) until June 17.

Key stocks

Eleven out of 12 sectoral indices ended with gains. The BSE Oil & Gas index led the rally, with five per cent gain.

Monsoon-dependent sectors, including automobile and fast-moving consumer goods (FMCG) gained across the bourses, on the back of above-normal rains. Among the automobile stocks, Maruti Suzuki, Mahindra &Mahindra, Tata Motors, Bajaj Auto and Hero MotoCorp climbed between two and 10 per cent. In the FMCG, ITC and Hindustan Unilever gained three per cent and five per cent, respectively.

Shares of oil marketing companies (OMCs) gained after these companies announced Rs 0.64 a litre increase in petrol prices and Rs 1.35 per litre cut in diesel prices to align the domestic rates with global price benchmarks. Hindustan Petroleum and IndianOil Corporation surged six per cent and nine per cent, respectively.

Shares of capital goods companies gained on encouraging April IIP data. Larsen and Toubro (L&T), Siemens, Alstom T&D, Bharat Heavy Electricals ended up between three and six per cent.

In metals, Vedanta shed five per cent on reports that Life Insurance Corporation of India, which holds 9.06 per cent stake in Cairn India, is seeking a better offer, including higher dividend on the redeemable preference shares that the metal producer plans to offer Cairn shareholders as part of its planned merger. Cairn India ended with marginal losses. Tata Steel rose 2.37 per cent on reports that the trade unions representing workers of Tata Steel in the UK have decided to suspend its strike after the steel major approached the Advisory, Conciliation and Arbitration Service (ACAS) to resolve the pension dispute in an independent manner.

Week ahead

Markets are likely to remain volatile ahead of the expiry of June derivative contracts on Thursday.

The progress of monsoon, developments in Greece, the movement of the rupee against the dollar and crude oil price movement will dictate the trend.

Pharmaceutical company Lupin will replace Tata Power Company in the BSE Sensex, with effect from Monday.

An initial public offering (IPO) of Gujarat-based Manpasand Beverages will begin on Wednesday.