Multiple triggers for rally to go on

India Inc's performance, good monsoon key for bullish outlook

From yearly lows three months ago, the stock markets have rallied strongly, gaining 20 per cent. Despite the gains, which saw the Nifty re-conquer the 8,000-mark and end at 8,156 on Friday, experts believe the markets are on the cusp of a bull run.

The main trigger for the return of optimism is the March 2016 quarter earnings. The earnings came in better than expected after sluggish growth over the last couple of quarters. The sentiment across the board is that the economy is on the path of revival.

 

According to Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India), "The earnings downgrade cycle looks like coming to an end. Whether we are witnessing an upgrade cycle needs to be seen."

Motilal Oswal, chairman and managing director at Motilal Oswal Financial Services, who said barring PSU banks, the March quarter earnings season was better than expected.

The earnings came with a normal monsoon prediction for this year. This can push up the rural economy after two years of successive drought.

Experts said regular rainfall could lead to a strong demand for consumer-related and discretionary items, including cars, consumer finance, paints and cement.

A good monsoon will also help keep food inflation low. It could allow the Reserve Bank of India to cut interest rates, thus improving the cost and availability of funds.

"If the RBI cuts interest rates owing to a good monsoon, we can see a great availability of funds in the economy, thus pushing the economic cycle," said Ajay Bodke, chief executive officer and chief portfolio manager (PMS), Prabhudas Lilladher.

Domestic factors were also aided by global ones. The fears of Great Britain exiting the European Union (EU) have eased on comments from the Bank of England.

"Global factors contributed to the rally as many emerging markets are currently rallying pretty hard and India is also getting a push because of that," Arora said.

 

There is speculation that the government will start the payout of the Seventh Pay Commission to central government employees. "This will further boost consumption demand," Bodke said.

"The economy is on the path of revival and if the triggers fall into place, we can see 10,000 on Nifty by December," Oswal said.

With contribution from Ram Prasad Sahu