Investors look to reforms to lift market mood (Market Outlook)

With a 12-percent rain deficit forecast officially resulting in the sharpest fall in 42 months for key equity indices during the week ended Friday, analysts said it was in the government's court to lift the mood by enhanced project spending and more reforms.

While the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) fell on four successive days, with a small rise on Monday, the broader Nifty of the Nation Stock Exchange fell on all the five trading days, to log the worst weekly drop since December 2011.

For the Sensex, considering the closing high was 27,959.43 points for the week and a low of 26,551.97 points, it was a fluctuation of 1,407.46 points. The index ended the week at 26,768.49 points, down to 1,059.95 points, or 3.8 percent. The Nifty fell by a similar margin at 8,114.70.

"Sentiments were weak due to the concerns over monsoon and Greece. Quarterly results have also not provided any cheer. Markets also awaited the non-farm payroll data in US," said Dipen Shah, head of private client group research with Kotak Securities.

The week saw Reserve Bank of India (RBI) Governor Raghuram Rajan, calling for urgent steps from the government to cushion the possibility of a rain deficit, also lowered the growth forecast for the current fiscal to 7.6 percent from 7.8 percent. It was felt inflation will inch up more than predicted.

"Now the trigger is with the government, the spending has to start soon. The government will have concerns about below-average monsoon," said Vinod Nair, head of fundamental research, Geojit BNP Paribas.

"Also as the next set of reforms is likely to be considered only by the forthcoming monsoon session, the timing of initiation in government spending and the direction, i.e. towards support or growth, will impact the sentiment," he added.

It also emerged during the week that foreign funds turned out to be net sellers in May 2015 with an outflow of Rs.14,272 crore. This was for the first time since August 2013 that their flow into the Indian markets was negative. Their pull-out in the past week was Rs.1,883 crore or $227 million.

The week under review was also the first after the results season for the first quarter of the last financial year ended March 31 -- which showed some mixed outcomes.

"Though the just concluded quarter -- first quarter of 2014-15 -- depicted muted top line and bottom line growth, however, the management commentary suggests improvement in financial performance from second half of 2015-16 onward, going forward," said ICICI Securities.

Giving his assessment, Gaurav Jain, director with Hem Securities, said investors continued to worry over Greece developments, weak monsoon, sell-off by foreign funds and weak global cues. The future will be shaped by economic performance, monsoon, rupee movement and the interest of foreign funds.

"All markets -- debt, equity and currency -- were down post-policy on account of hawkish stance of the Reserve Bank. But though markets were down in reaction to the policy stance, we also believe markets will consolidate," said Anand Shah, chief investment officer with BNP Paribas Mutual Fund.

He added: "Going ahead, the progress of monsoon will be closely watched, in addition to the reforms initiatives of the government. Passage of important bills like GST are a pre-requisite for the markets to sustain and rise from current levels."