Shailendra Kumar of Narnolia Finanical Advisors said this tapering of GDP growth on a sequential basis would surely be a positive for banking stocks in the near term due to rate cut expectations
The rally in four consecutive sessions followed by consolidation on November 30 indicates that the market has turned cautious ahead July-September GDP data and crucial events lined up this week. These include: Monetary Policy Committee and the Organisation of the Petroleum Exporting Countries meet and state elections exit poll results.
Benchmark indices climbed more than 3 percent last week, but the same kind of participation was not seen from broader markets as the Nifty Midcap and Smallcap indices gained 0.9 percent and 0.2 percent, respectively.
Hence, cautious trade, with some amount of profit booking, is likely to be seen on December 3, especially after the structurally positive GDP data, but that could be bought on Monday or Tuesday on hopes of a rate cut, experts said, adding the status quo seems to have been already priced in.
"Markets will react to this structurally positive news with some sort of profit booking after a 400 points rally in the Nifty," Prashanth Tapse, AVP Research, Mehta Equities, said.
Shailendra Kumar, Chief Investment Officer, Narnolia Finanical Advisors, seconds Tapse. He said this tapering of GDP growth on a sequential basis would surely be a positive for banking stocks in the near term due to rate cut expectations.
GDP growth slowed to 7.1 percent for the quarter-ended September compared to 8.2 percent in the preceding quarter, but significantly higher than the 6.3 percent seen in Q2 FY18. The Street had estimated GDP at around 7.4-7.6 percent for the quarter.
Overall growth was below market estimates given the gloomy consumption and investment trends following a tighten liquidity squeeze in the banking and NBFC space. It was expected to be lower than earlier quarters due to disappointing readings from the month-on-month data in industrial production and as well as monthly vehicle sales.
After registering a growth of 8 percent in Q1 FY19, gross value added (GVA) growth in Q2 also decelerated sharply to 6.9 percent as there are several concerns with the latest GDP print.
"Core GVA has slowed down significantly from 8.6 percent to 6.6 percent. This indicates there is a perceptible demand slowdown from the private sector. This trend might continue in Q3 because of market volatility," Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.
Nominal non-agricultural GVA has remained buoyant at 13.4 percent, but nominal agri GVA has expanded at just 2.8 percent. Growth rate in nominal agri is lower than real agri growth, implying a negative agriculture deflator, the first time since June last year. The growth in agri price deflator has more than halved from the mid-2000s.
"While this clearly indicates effective food supply management, the flip side is that it is worrying and portends significant lack of rural purchasing power," Ghosh said, adding that a lower growth in the agri credit indicates a slowdown in farming activity.
"Agri non-performing assets (as a percentage of agriculture advances) for the September, June and March quarters for select banks shows that the NPA problem continues to plague the sector. This problem is further compounded by the promise of loan waiver in election bound states and hence farmers reneging on payments," he added.
After the GDP reading, near-term movement in the equity market will largely depend on the outcome of various key events ahead: Monetary Policy Committee policy on Wednesday, December 5, OPEC meeting on Thursday and state elections exit poll on Friday.
Tapse said any signs of political uncertainty could affect the market directions and business environment going forward.
The recent drop in oil prices and the rupee's strong recovery against the dollar has eased pressure for an increase in interest rates, a signal that rates would be left unchanged in the upcoming monetary policy meet due on December 5, Tapse believes.
Technically, the index has formed a bullish candle on the weekly chart. Experts said Nifty consolidation above its 200-day moving average sends a strong signal and need to sustain the same in the near term.Tapse said key support for the Nifty is placed at 10,799 levels. "If the index starts moving upwards, key resistance levels to watch out for are 10,942 and near 11,060 levels. We suggest traders buy on dips as long as the Nifty sustains above its 200 daily moving average at 10,744 levels."