InvestorQ : What are the major trading and the investment cues for the trading week commencing on 26 August 2019 and how to position for trade?
NISHA Nayak made post

What are the major trading and the investment cues for the trading week commencing on 26 August 2019 and how to position for trade?

4 years ago

The market reaction on Monday could be driven by a number of factors although the FM relief package could be the key driver. Markets could not react to the package on Friday as it was announced post trading, although the expectations were factored into the bounce.

· The big reaction on Monday could be to the scrapping of the FPI additional surcharge. By keeping all capital gains outside the ambit of the higher surcharge, the FM has virtually exempted FPIs structured as trusts and even DFIs from this ambit of higher surcharge. However, the surcharge on super rich has not been scrapped although the FM has promised to review the same in 2022. Markets are expected to open gap up on Monday.

· The FM announcement on Friday about immediate disbursal of bank recap funds of Rs.70,000 crore and additional funding of Rs.30,000 crore to HDFCs is likely to buoy the financials on Monday.

· Another significant sector to be impacted by the FM announcement is the auto sector. The FM has offered additional 15% depreciation and has also revoked the old policy of the government departments not buying new cars. It remains to be seen if these will be long term positive but sentimentally it will be positive for stocks. However, auto sector is likely to be disappointed that there has been no progress on reducing the GST rates to 18% from the current level of 28%.

· The big negative on Monday will be the deterioration on the trade war front. On Friday, China imposed additional tariffs on US imports to the tune of $75 billion and in retaliation Trump has called upon US companies to shift their operations out of China. On Friday, this had led to a panic like situation with US markets correcting sharply and gold pricing rising by over 2%. This could negative most of the FM effect.

· A key factor to watch will be the rupee. Last week it had broken beyond the 72/$ mark and has lost 6% since the beginning of August. Market analysts are already betting on the INR getting closer to 73/$ and that could keep FPI flows under pressure.

· Oil would be another key factor to watch out for. The trade war situation led to oil falling sharply on Friday but OPEC stands ready to cut output further in congruence with Russia. Indian markets would prefer that oil remains around $60/bbl.

· This Thursday will see the F&O expiry for the month of August and the volatility is likely to keep the week quite shaky. One impact could be that there could heavy short covering in sectors like banks, financials and autos where the FM has made positive announcements and that could buoy markets higher.

· Finally, the week will see the all-important GDP data for the June quarter being announced. For the March quarter, the GDP growth came in at a 5-year low of 5.8%. Most rating agencies and brokers have already downsized India’s GDP growth to just about 6.2% for the fiscal year 2019-20 and the first quarter is likely to see pressure. This will be a key variable to impact the markets in the coming week. Any number below 6% will be viewed negatively by the markets.

Broadly, the response to the FPI package, the auto boost and the progress on the trade war will be the key driving factors in the coming week.