Markets Ahead – Caution Optimism Likely To Arrest Euphoria | Weekly Note

Next week will be a test of the quality and endurance for the markets given the strong performance in November and the wobbly macro environment. Last month was the best month of the year for stocks.

The week gone by saw market barometers soar to new highs, traders will see if it the market can sustain the current rally for another week.

Nifty and Sensex rallied to fresh life high led by euphoric buying in the large-cap stocks.

Reliance Industries created history by becoming the first company in the country to cross Rs 10 Lakh Crore mark in market capitalization.

Banks and frontline NBFCs turned active on hopes of government aid.

Meanwhile, last week ended on a negative note with India’s GDP growth rate stumbling to near 20 quarter low at 4.5%.

The coming trading week will reflect the overhang of subdued macro data and as such the attention will be on Reserve Bank of India’s reaction.

Global markets will face the big risk from the outcome of trade talks, but economic reports will be important as investors continue to assess whether the Fed was right in ending its rate cuts.

Investor focus will move more intently to the topic of trade, and that is what will make or break the rally at year-end.

President Donald Trump has promised that a preliminary trade deal with China is close, but there still is no agreement and the December 15 deadline for new tariffs is getting closer.

Elsewhere, the meeting between the OPEC and Russia hold in Vienna on Thursday and Friday, will be watched closely for the extend of production cut agreement.

Russia is likely to seek a change in rules for how it counts its petroleum output, so the meeting may not be as predictable as expected.

How should Investors play the week ahead?
We believe that in the coming week stocks like Yes Bank and overall Banking sector will be in action ahead of the RBI policy.

The markets are looking at some further easing of interest rates considering the fact that industry growth rates have come off and urgently require government action of low-interest rates to boost demand in the economy.

Yes Bank will be in action after its board meeting last week, indicating that it has got confirmed interest from 8 investors for around $2 bn in a bid to boost its capital adequacy levels.

We also believe current challenges will take a toll on near-term earnings. However, one cannot turn a blind eye to its underappreciated franchise with a m-cap/deposit of <10%, lowest among peers. Last 12 months have been tough for Yes Bank which evident from the sharp deterioration in its book quality (GNPL spiked to 7.4% in H2FY20 from 2.1% in Q3FY19) Telecom stocks are also expected to be in action ahead of the tariffs likely to be announced which are expected to be in the range of 20-30% hence Bharti, Reliance and Vodafone would be in action. In all likelihood, if the tariffs are below what the street expects then they could be some profit booking ahead. In PSU stocks BPCL will be in action as market reports suggest that the company is likely to announce a bumper cash dividend ahead of the proposed sale ahead to private investors. Net we expect markets to not react extremely negatively to the GDP data in the coming week, as markets are rising high on expectations that some more government initiatives will be announced hopefully to trigger a demand revival ahead post-Mar 2020 onwards. Also with liquidity from FIIs continuing to remain strong ahead, any dip will be used by them to accumulate quality stocks and increase their holdings here.