Week ahead: Markets ready for Greek odyssey

The FMCG, banking and capital goods sector rose 1-2% each during the week, while the IT index ended lower by 1%.

Benchmark share indices shrugged off the unfolding Greece saga to gain for a third week on the back of better-than-expected progress of monsoon and rebound in the core sector output.

The BSE Sensex regained the psychological 28,000 level to settle higher 280 points, or one per cent, at 28,092, and the National Stock Exchange's Nifty rose 103 points, or 1.2 per cent, to end the week just shy of the technically crucial level of 8,500 at 8,484.

There was outperformance on the broader market front; the Mid-cap Index rose 183 points or 1.7 per cent to settle at 10,870 and the Small-cap Index rose 179 points or 1.6 per cent to end the week at 11,303.

Key events

The India Meteorological Department (IMD) said for the country as a whole, the cumulative rainfall during this year's monsoon season was 10 per cent above the long period average (LPA) until July 2. A normal monsoon will not only boost incomes in a pre-dominantly rural economy, but also give enough headroom to the Reserve Bank of India (RBI) to cut rates further in the foreseeable future.

The output of eight core infrastructure industries, i.e., coal, crude oil, electricity, natural gas, refinery products, fertilisers, steel and cement, rose by 4.4 per cent in May 2015 compared to 3.9 per cent in the same month last year. In the process, the May data snapped two straight months of decline.

Meanwhile, RBI Governor Raghuram Rajan said the Indian economy was recovering and there were signs of a pick-up in capital investments.

Expert views

“The markets seem hopeful that the outcome of the Greek referendum will not have any significant repercussions on the global economy, especially India. The Indian economy is not linked to Greece in any major way,” said Dipen Shah, head- Private Client Group Research, Kotak Securities.

“If the Greeks vote ‘Yes’, i.e., in favour of the generous bailout package proposed by the EU, this would get a thumbs-up from the global markets and all-risk assets would rally,” said Ajay Bodke, head - investment strategy & advisory, Prabhudas Lilladher in a note. “In case the Greeks were to vote ‘No’, it would mark the beginning of the end of Greece’s presence in the Euro zone and although there is a likelihood of a knee-jerk reaction, the market would soon heave a sigh of relief that the Euro zone has got rid of a country that wants to thrive on fiscal profligacy and indebtedness,” he added.

Sectors and stocks

The FMCG, banking and capital goods sector rose one to two per cent each during the week, while the IT index ended the week lower by one per cent.

The FMCG index galloped by nearly three per cent as a normal monsoon season is expected to bolster the rural economy. Hindustan Unilever gained 4.2 per cent at Rs 924 and ITC added 2.2 per cent at Rs 315. Colgate, Dabur India and GSK Consumer added two to three per cent each. Banking shares ended on a high note, with heavyweights such as HDFC Bank, ICICI Bank and State Bank of India gaining around one per cent each. In the larger banking universe, Bank of Baroda, Federal Bank, PNB and Kotak Mahindra Bank gained two to four per cent each.

In the capital goods space, BHEL, BEML and L&T rose three to eight per cent each. ABB, Alstom and Thermax were among the other significant gainers in this space. On the other hand, IT stocks ended on the lower side due to the strengthening rupee. Tech Mahindra dived by nine per cent, while Infosys and Wipro shed about one per cent each.

Week ahead

The markets would react to the Greece voting outcome in the week ahead.  Greece will hold a referendum on Sunday, viz, July 5, 2015, on whether to accept the reform proposals put forward by its international lenders. Greek Prime Minister Alexis Tsipras urged a ‘No’ vote, saying a rejection will bolster chances of securing a better deal. The recent rally witnessed in the stock markets has left little room for disappointment.

A ‘No’ vote from Greece could trigger knee-jerk reactions across the world markets, including India. Disappointing news from Greece could drag the Nifty to its support level of 8,200. On the other hand, a positive vote by Greece could catapult the index to 8,600 levels.

The India volatility index or VIX rose 4.8 per cent on Friday to end higher by 15.56 per cent in the bygone week, suggesting nervousness among market participants ahead of the landmark Greece verdict on Sunday.

The derivatives data indicates that the Nifty will take strong support at 8,300 and will face resistance at 8,500. On the technical front, 8,350 is a strong support for the Nifty and a breach of this level could signal a change in the short-term trend for the bourses.