InvestorQ : What could be the major triggers for the Nifty and the Sensex for the rest of the year? Could I see higher levels on the Nifty and Sensex or is it peaked out?
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What could be the major triggers for the Nifty and the Sensex for the rest of the year? Could I see higher levels on the Nifty and Sensex or is it peaked out?

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2 years ago
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Indian markets are in a delicate situation and could move either ways. If you talk of the rest of the year, there could be 4 very important factors that could have a bearing on the Nifty and the Sensex.

· Monetary policy of the RBI over the next 6 months will be crucial. The RBI rates are already at a 9-year low and the RBI has cut repo rates by 75 basis points in the last four months. The next steps by the RBI will depend on two factors. The lower inflation cues must be combined with the willingness of banks to pass on interest rates cuts to the borrowers. Only if these two conditions are satisfied will the RBI look at implementing more rate cuts in the future. A low interest rate regime is essential because the cost of funds have gone up sharply in the last one year by more than 100 bps even for the more blue chip borrowers. This will be the key to the markets going higher.

· Global oil prices just cannot be ignored. Currently, the oil prices have settled closer to $60/bbl, which is quite comfortable for the Indian economy. Oil prices are important because India imports nearly 85% of its daily crude oil requirement predominantly from the Middle East and West Asia. If prices of oil go up then inflation goes up and the trade deficit widens. Normally, higher oil prices come with a weak rupee and that is not too positive for markets.

· How debt market crisis is handled will be a very important consideration. Already, there is close to Rs.200,000 crore of outstanding debt with IL&FS and DHFL put together. Mutual funds and banks holding such debt have already taken big hits. This has to be handled carefully because they cannot even be taken to the NCLT as they do not have too many physical assets in their books, which can be auctioned to the highest bidder. There have been a slew of defaults in the last one year and that cannot be allowed to continue as investors may lose faith in the bond markets altogether.

· Lastly, the Union Budget that Nirmala Sitharaman will be announcing in July will be a key trigger for the market. Normally, markets have welcomed a positive reform oriented budget and such a budget will be really welcomed and markets could get to higher levels. Firstly, the budget must look to carry out genuine reforms. GST and IBC were good examples of a strong government pushing tough reforms through. Secondly, the budget must not let the fiscal deficit shoot very high as that is again not in favour of stock markets. Markets prefer if budgets stick to fiscal discipline. Lastly, markets are looking to some relief in the form of withdrawal of withdrawal of LTCG on equities or even a reduction of STT. Something like that will be a real boost for the markets.

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