Macrodata, US Fed meet outcome, Brexit in focus

The broader markets are likely to continue their out performance even as pressure on large caps remains

Investors are likely to remain cautious ahead of key macro economic data and the outcome of the US Federal Reserve meet. Worries that Britain might vote not to be a part of the European Union in the June 23 referendum would continue to weigh on sentiment.

In the week to June 10, benchmark share indices witnessed profit taking after they hit seven-month highs with large caps taking a hit while outperformance in the broader market was seen on theme-based buying.

The S&P BSE Sensex ended down 0.8 per cent at 26,636 and the Nifty50 ended down 0.6 per cent at 8,170. In the broader market, the BSE Smallcap index ended up two per cent.

“Markets witnessed a bit of consolidation tracking global cues and round of profit booking after sharp gains before the RBI (Reserve Bank of India) policy session. Returns in the broader market were led by specific themes like logistics and NBFCs (non-banking financial companies) which could have further upside closer to the monsoon session. Going forward, macro-data environment would be expected to drive the markets both locally and globally,” said Tirthankar Patnaik, head of strategy at Mizuho Bank.

At its recently bi-monthly policy review, RBI kept key policy rates unchanged amid inflation concerns but maintained an 'accommodative' monetary policy stance going forward. The repo or the repurchase rate was unchanged at 6.5 per cent on the back of higher food inflation and amid expectations of a rate action by the US Federal Reserve. The central bank has also kept the cash reserve ratio unchanged at four per cent.

Meanwhile, the index of industrial production for April was weaker-than-expected after it contracted to -0.8 per cent compared to 0.1 per cent in March 2016 with the manufacturing sector contracting to -3.1 per cent compared to -1.2 per cent in the previous month.

The broader markets hogged the limelight during the week under review with logistics companies gaining the most on hopes of clearance of the goods and services tax Bill in the Upper House of Parliament.

Gati, Snowman Logistics, Sical Logistics, Allcargo Logistics, Patel Integrated Logistics and VRL Logistics surged 6-20 per cent each.

Alphageo was the top gainer up 66 per cent after the company announced it has received letters of award for contracts from Oil and Natural Gas Corporation of India (ONGC) for an estimated value of Rs 1,482 crore.

Shreyas Shipping & Logistics gained 27 per cent after the company said it had entered into an agreement with state-owned Shipping Corporation of India to strengthen coastal shipping and expand its presence on the east-west trade lane.

Select state-owned companies surged amid reports that the Centre released a new set of guidelines on capital restructuring of state-owned companies. MMTC jumped 20 per cent, while STC gained eight per cent.

Sugar companies also surged during the week tracking the increase in global prices. Further, rating agency ICRA said the profitability trend for domestic sugar mills is likely to be better during the crushing season 2015-16 on supply correction. Upper Ganges, Ugar Sugar, Uttam Sugar, Oudh Sugar and Dharani Sugars zoomed between 17 per cent 26 per cent each.

Infosys emerged the top Sensex loser, down nearly seven per cent amid worries that compensation increase and higher visa fees could impact margins in the first quarter of the current financial year. Concerns that growth could remain volatile in the near-term also dampened sentiments.

Outlook

Apart from the global events such as the US Fed meet, macro-economic data such as the wholesale price index and consumer price index for May 2016, along with the progress of the monsoon, will dictate market trend. Investors will also be keenly awaiting the commentary from the US Fed at the conclusion of its two-day policy meet, which ends on Wednesday, June 15.

Further, announcements by the India Meteorological Department regarding the progress of the monsoon will also be in focus.