Poll outcome to set market trend

Outcome of the assembly polls in five states will be the key factor in addition to Q4 earnings and April WPI

The outcome of the Assembly polls in five states will be the key factor for the markets in the week ahead, along with the next batch of fourth-quarter earnings and trends in global crude oil prices. In the week to May 13, the markets snapped a two-week losing streak to end higher after the government unleashed two major reforms, the amended India-Mauritius Double Taxation Avoidance Agreement (DTAA) and the Insolvency and Bankruptcy Code Bill. The S&P BSE Sensex ended up 261 points at 25,490 and the Nifty50 ended up 81 points at 7,815. In the broader market, the BSE Midcap and Smallcap indices ended up 1.7-2 per cent.  The Rajya Sabha passed the Insolvency and Bankruptcy Code Bill, enabling for the first time a single law to deal with distressed companies, their promoters, creditors, employees and other stakeholders.

According to the amended tax treaty with Mauritius, India has gained the right to tax capital gains arising in Mauritius from sale of shares acquired on or after April 1, 2017, in Indian companies.

India's industrial output rose by 0.1 per cent in March, largely losing the momentum generated in February, when it had risen by two per cent after a three-month fall.

The consumer price index-based inflation for the month of April was a higher than expected 5.3 per cent on the back of a large jump in food prices, snapping a three-month downtrend.

“The week has been exciting with the earnings season continuing to provide positive surprises and the number of domestic macro events affecting the markets, both in the short and medium to long-term. The modified Mauritius tax treaty was long expected and should not have an incrementally negative impact on capital inflows since an adequate level of grandfathering was provided. We believe the Bankruptcy Bill will have a long-term positive impact on doing business, particularly for financial intermediaries,” said Tirthankar Patnaik, India strategist, Mizuho Bank.

Further, Indian banks will have to make higher provisions for lending to large corporate borrowers above a certain level from the next financial year, according to a proposal by the Reserve Bank of India.

Gains during the week were led by banks after the passage of the Bankruptcy Bill, which allows early identification of financial distress and helps faster recovery of dues. Axis Bank was the top Sensex gainer, up six per cent, followed by ICICI Bank, HDFC Bank and SBI

Asian Paints ended up six per cent after the company reported a 20 per cent year-on-year (YoY) jump in its consolidated net profit at Rs 409 crore for the quarter ended March 31, 2016 on healthy operational income. FMCG major Hindustan Unilever ended down 2.6 per cent after volume growth stood at four per cent in Q4. This number lagged street expectations of five to seven per cent and was HUL's lowest volume growth in the past five quarters.

Outlook
The outcome of the Assembly polls in Kerala, West Bengal, Puducherry, Tamil Nadu and Assam will dictate market sentiment next week.

Further, the next batch of fourth-quarter earnings from large corporates such as ITC, Lupin and Punjab National Bank will also be in focus.

The government is likely to release data on April wholesale price inflation on Monday, May 16.