Moneycontrol Bureau
As the Indian market is still fighting the Greece uncertainties, Bank of America Merill Lynch feels the domestic market has more other things to worry about than just that. Indian bulls punched strong gains on Dalal Street on a day when global markets were struggling on Monday after Greece voted 'no' in the referendum, favouring a rejection for the creditors’ proposal. BoA ML does not expect any early resolution of the Greece crisis with rising concern on Grexit risks.
According to the firm, RBI governor Raghuram Rajan will defend Rs 65 per dollar levels, after letting the initial shock play out, if safe haven effects strengthen the US Dollar. “We estimate that the RBI can sell USD 15 billion to curtail any undue volatility,” it says in a note.
So here are six risks that Indian market may face in July, apart from the Greek tragedy.
1. May IIP
May industrial growth may slow down to 2.8 percent on July 10 from 4.1 percent in April. While industrial data is volatile, a significant beat will suggest a turnaround is on the way. BoA ML thinks recovery should be back-ended as lending rates take about 6 months to support growth. GDP growth is seen slowly bottoming out to 6 percent in FY16 from 5.5 percent in FY15.
2. June inflation
CPI inflation may be at reasonable 5.4 percent expected on July 13. BoA ML expects the RBI to cut 50 basis points by early 2016 with inflation well on track to its 'under'-6 percent January 2016 target. June WPI deflation is seen at -2.4 percent.
3. Monsoon
Cumulative seasonal rainfall is currently running at normal levels, despite 13 percent excess rains in June. Good June is no guarantee for a normal monsoon as it accounts for only 15.2 percent of the seasonal rainfall. We will get a clearer picture of the monsoon by mid-July when sowing picks up.
4. Parliament session: reforms?
Monsoon session will start on July 26. "We are not very hopeful given political controversies. Lending rate cuts, rather than reforms, hold the key to an immediate cyclical recovery by end-2015. Reforms will support growth only over, say, 5 years and so, it does not really matter where they are legislated in this parliamentary session or next," it says.
5. Corporate earnings
Sensex profit growth may recover mildly to about 4 percent in the June quarter. Some of the weakness could be due to the high base effect from June quarter last year when Sensex recorded a high 24 percent profit growth. BoAML expects a turnaround from September onwards.
6. FOMC meet: September rate hike?
BoAML expects Fed signal a September hike in the meet on July 28-29 meet. Despite improving data, the bond market is pricing in only about a one-in-five chance of a rate hike in September. This seems to reflect skepticism about the economic pick-up, a nagging sense that the Fed still has a dovish bias and concerns about Greece. "We don’t find any of these arguments compelling," it says.
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