Domestic market worries expanded under global intimidations…

The domestic market is under a profit booking mode, post a good pre-election rally, nearing the event risk date. It is believed that a good portion of the likely outcome has been factored in by the market. The market does not expect any eventful change in the outcome and maintains a stable mandate. Nifty50 touched a new high of 11,850 on 18th April, which was up 12% from the low of 10,597 on 19th February.  A deeper consolidation started from 3rd of May as pre-election rally faded during the last phase of the election. There are a variety of views in many types of surveys and notably the end result is not going to have a meaningful impact on the current economy. Investors were alerted to turn cautious in the short-term, till the event risk is digested.

At the same time consolidation in the global market impacted the trend of domestic market too. Global economic data projects a slowdown in growth, as a result FOMC had turned more dovish, hinted at no change in interest rates during 2019 due to economic concerns. However, a better than expected 1st quarter US GDP growth of 3.2% saw investors keenly awaiting the upcoming policy outcome, to see whether FED would re-think its projections, with a risk to change the quantitative measures. But on a positive note, FED has maintained its stance and the consensus view is a status quo in CY2019. Weak US inflation and US-China trade concerns are giving a mixed bias to investor’s sentiment.

US market was down 5% during the month due to US-China trade clash. About a week ago, market was hoping for a preliminary trade deal by the end of April. But talks failed by the end of last week, US stuck to its gun and imposed a tariff hike from the current rate of 10% to 25% on $200 billion worth of Chinese products applicable from 1st May onwards. China retaliated with 25% tariff on $60 billion US product imports.

There are speculations regarding this issue and whether this punitive action can expand further. The U.S. Trade Representative is taking steps to prepare and slap tariffs on the remaining Chinese goods coming into the U.S. Well, based on official statements we can expect better clarity on this issue in the coming three to four weeks. There are also views that trade war will become worse before finally reaching an agreement. And consensus is that a deal will be achieved given the larger interest of respective nations and world.

In the last two days markets have seen some respite after many days of consolidation due to some ease in trade tensions between US and China, as the US President sounded optimistic over upcoming meeting.  But the trend continues to be negative, such rallies may be range bound with investors likely to be less aggressive in the short-term as they watch eagerly the ongoing muted quarter earnings, global developments and election verdict.

Posted: May 2019