RBI’s Rate Cut, Tariff Talks To Determine Market Direction

Markets during the period under review from May 29 to June 4 were volatile intra-day but range bound for the period. They moved in a broad band and are looking for big news flow to break out in either direction.

They gained on two of the five trading sessions and lost on three sessions. BSE-SENSEX lost 314.07 points or 0.39 per cent to close at 80,998.25 points while NIFTY lost 132.25 points or 0.53 per cent to close at 24,620.20 points. Dow Jones gained on four of the five trading and lost on one. For the period under review it was up 175.99 points or 0.42 per cent to close at 42,519.64 points.

Donald Trump has doubled the tariff on metal imports and this would impact steel and aluminium imports into the USA. This would have a direct impact on car manufacturers. Not sure whether he has them on his radar or what as a lot of measures he is contemplating will be detrimental for them, for example imports from Mexico where cheap labour has made many OEMs set up component manufacturing.

Results season for the quarter and the year ended March 25 is over and final summary would be available during the course of the week. It appears that the results were by and large on expected lines with profits for India Inc improving. Valuations which have been a concern for Indian markets, have not increased post the results, but have been contained partially. Once the summary is out, there would be further clarity.

May futures expired on May 29. There was a sharp upside movement in the last one hour and particularly in the half hour from 3pm to 3.30pm to get a better weighted average close for settlement of NIFTY. Despite the heroics, during the week, NIFTY was flattish. It closed with series gains of 586.90 points or 2.42 per cent to close at 24,833.60 points.

In economic news, GST collection for May 25 was at Rs 2.01 lakh crores, which was higher by 16.4 per cent over May24 but lower than the record 2.37 lakh crores in April 25. Taking the first two months as an indication, the government would be eyeing a total collection of Rs 25-27 lakh crores from the current year.

There have been four new IPO listings in the last three days. None of them were spectacular and could be called as lukewarm. The two big IPOs from Schloss Bangalore and Aegis Vopack managed to close with marginal gains on Monday when they listed. While Schloss remains there only, Aegis Vopack has oved up by about 12 per cent. Shares of ProstarM which had issued shares at Rs 105, hit the upper circuit on listing at Rs 126, was at down circuit at Rs 119.70 today. The fourth and final listing was from Scods Tubes which opened flat at Rs 140 today and after trading lower managed to close 5 per cent higher at Rs 147. Shows how grey market premiums vanish into thin air.

RBI meets for its bi-monthly policy review meeting between June 4 and 6. Looking at positive GDP numbers, above average forecast of rains from the Met department, and inflation within expected range of RBI, another rate cut of 25 basis points is likely to happen. This would have an impact on rate sensitives like realty, auto and positive impact for India Inc. If the cut which would be announced on Friday is greater or lesser than 25 basis points there would be an impact on markets. Expect markets to take all these events into their stride. News on the Trump tariff front are not all that good as concerns on agreement with China are surfacing. The India-US tariff negotiations are at an advanced stage of discussion and that could be a big trigger for markets as and when announced.

Markets need to decisively cross and sustain 25,150-25,200 points for the next leg of the rally to unfold. Until that happens, these levels would be a strong resistance. On the support side, levels of 24,400-24,500 and if this were to break, lower down at levels of 23,800-23,850 points would be key.

Currently until either of the levels are violated, it would be a trading zone in the market with sharp intra-day swings. Trade cautiously.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)