Indian stock markets ended highly volatile week with marginal gains, with Sensex and Nifty managed to continue their gaining momentum for the third consecutive week that ended May 31. The Indian benchmarks, Sensex and Nifty, were range-bound during the week and settled with 0.7 per cent gain, helped by buying across technology, private banks and energy space.
With the impending RBI policy meeting, macro-economic data, auto sales numbers, corporate results, and the ongoing geo-political tension, the Indian equity market is likely to be action packed in a holiday-shortened week ahead, which is likely to keep investors on the edge. The stock markets would remain closed on Wednesday for Id-Ul-Fitr. This week will also set near-term direction of the market as the newly-elected Narendra Modi government will shift focus towards various economic reforms and policies.
Here are five factors that will affect Indian equity markets this week:
RBI Policy Meet
All eyes will be on the Reserve Bank of India Monetary Policy Committee meet on June 6 which will set tone for the Indian equities. Given the slowing GDP growth along with the falling yields and rising bond prices, market analysts are hopes that there could be another rate cut announcement by the RBI governor Shaktikanta Das. In calendar year 2019, the RBI lowered repo rate by 25 basis points in its February and April monetary policy reviews.
The market is anticipating a 25 basis points cut in repo rate to 5.75 per cent by the RBI in its second bi-monthly monetary policy for the current fiscal, which comes on the heels of the conclusion of the Lok Sabha elections 2019.
The auto stocks will remain in focus as the market will react to auto sales numbers released by the domestic companies. The auto companies reported weak sales figures in May, led by Maruti Suzuki, as consumer sentiment and demand continued to remain subdued during the pre-election phase.
Maruti Suzuki India, the country's largest car maker, on Saturday reported 22 per cent decline in sales at 134,641 units car in May 2019 as compared to 172,512 units sold in the same period last year. Tata Motors saw its domestic sales dipping by 26 per cent year-on-year to 40,155 units, while Mahindra and Mahindra posted 3 per cent y-o-y decline in total sales at 45,421 units in May.
According to market analysts, with a stable government at the centre and the forecast of a near normal monsoon, the auto sector will see an improvement in consumer sentiment over the next few months.
In the coming week, Nikkei Manufacturing PMI data and Nikkei Services PMI data for May will be the key trigger for the markets. The Nikkei Manufacturing PMI data, an indicator of economic health for manufacturing and service sectors, will be released on June 3 and Services PMI data on June 5.
Investors will also react to the Gross Domestic Product (GDP) numbers released last week, which raises fresh concerns over the growth of the Asia's third largest economy. India's GDP estimates for the January-March quarter of financial year 2018-19 was recorded at 5.8 per cent, which happens to be lowest growth rate in the past five financial years. The eight core sector industries too saw a slowdown in April, with growth rate falling to 2.6 per cent.
Crude Price Movement
Investors may react to crude price movement after Brent crude futures tumbled on Friday after the US President Donald Trump announced more tariffs on imports from Mexico, which is one of the largest US trade partners and a major supplier of crude oil. Brent, the global benchmark for oil prices, breached levels of USD 65 per barrel and fell to around USD 62 a barrel, down from USD 70 a barrel last week.
Lower crude oil price is always considered as positive for India as it imports around 85 per cent of its fuel requirement. It will also be a positive development for industries such as aviation and paints.
Escalating Global Trade War
Traders will also keep an eye on global developments, especially US-China and Mexico trade talks, which may aggravate an already tense global trade environment. Adding to it, investors will also focus on Britain's Brexit, which may affect equity market across the globe. The British Prime Minister Theresa May last week announced that she will quit as Conservative party leader on 7 June but will stay in office until a successor is found.