Optimism on growth to push markets higher

The Indian market is expected to add to the robust gains made in the previous week on the back of optimism that the new government would take steps to spur economic growth. The benchmark indices are expected to log new highs thanks to the strong momentum seen in foreign flows.

"The worst for the market is over. Huge downsides from these levels are unlikely because the bottoming out of the economy has already happened," said Deven Choksey, managing director, K R Choksey Securities.

According to analysts, markets could open on a higher note on Monday by taking cues from the US stocks which gained after the May employment data jumped, returning to the pre-recession peak figure.

Last week, benchmark indices BSE Sensex and the NSE Nifty rose about five per cent each buoyed by domestic as well as global factors.

In its policy review meet last week, the Reserve Bank of India (RBI) cut the statutory liquidity ratio by 50 basis points to 22.5 per cent by infusing liquidity of about Rs 35,000 crore into the system. Further, the RBI's commentary on inflation and growth seemed to suggest a rate-cut later in the year.

On the global front, the US economy continued to show signs of an economic turnaround as employment data improved. The European Central Bank introduced further monetary stimulus after it brought down bank deposit rates to a negative 0.1 per cent. Also, Chinese manufacturing data improved and hit a five-month high in May lending to hopes that growth could be returning to the world's second largest economy.

In the coming week, key data points such as core inflation, industrial production index (IIP) and export-import data would also be keenly watched by investors. Also, the progress of the monsoon, which hit Kerala on June 6 after a four-day delay, would also have a bearing on the market.

The BSE Sensex ended the week up 4.8 per cent to close at 25,396. The NSE Nifty closed at 7,583, also up 4.8 per cent through the week. Last week, foreign institutional investors were net-buyers of equities worth Rs 3,776 crore.

According to analysts, the week ahead could see some profit-booking by investors but only to the extent of churning their portfolio.

"We are eyeing 7,800 in Nifty with noticeable support at 7,350 levels in case of any profit taking, which may take place in coming week," said Jayant Manglik, president (retail distribution), Religare Securities.

According to experts, profit-taking could be seen in select large-cap names of sectors such as capital goods and banking. On the other hand, buying could be seen in sectors such as metals, auto, oil and gas and selectively in the IT and pharma sector.

Domestic metal stocks gained close to 9.3 per cent last week and were among the best performing stocks of the week. Additionally, these stocks were buoyed by the partial lifting of the mining ban in Odisha. Tata Steel and Sesa Sterlite were the top two Sensex performers last week, gaining 17.3 and 14.4 per cent, respectively.

"The banking sector has run-up beyond its value. The pharma and IT stocks could see some participation as much of the money has mainly gone into sector like metals and other industrials," said Dhananjay Sinha, co-head (institutional research) at Emkay Global Financial Services.