Such strong numbers may be good enough for the sentiment to take the market near 11,800 levels but there are some concerns
The Gross Domestic Product (GDP), which measures economic growth of the country, scaled to two-year high on Friday driven by highly labour-led sectors like manufacturing, construction etc and also a favourable base.
The Indian economy grew 8.2 percent in April-June this year, the highest since the same period in 2016, amid signs that households are buying more and the companies are adding capacities, shrugging off the disorderly effects of the twin shocks of demonetisation and the goods and services tax (GST).
India became the fastest growing economy than the world's second-largest economy China which grew at 6.7 percent in June quarter against 6.8 percent in March quarter. At the current pace, India looks set to become the world’s fifth largest economy, ahead of the United Kingdom.
"The GDP growth number has been ahead of expectation. It reflects a strong recovery in industry and agriculture on the one hand and private consumption on the other. GDP numbers are in line with a high-frequency data including those on growth in industry, infrastructure and auto sales. Stronger growth, softer inflation, and in-line fiscal numbers show strong fundamentals of the country," Sujan Hajra, Chief Economist, Anand Rathi Financial Services told Moneycontrol.
The growth was higher compared to 5.6 percent reported in June quarter 2017 and 7.7 percent in March quarter 2018; also better than Street expectations of around 7.7 percent.
Such strong numbers may be good enough for the sentiment, which has been positive for the last couple of months, to take the market near 11,800 levels on Monday though there are some concerns like rupee weakness, higher crude oil prices, and trade war tensions, experts said.
"After strong GDP growth, we see strength in rupee and market despite whatever trend in global markets. FII flows are expected to return. India is strong on macros notwithstanding rupee weakness and global turmoil," Sanjiv Bhasin, Executive VP-Markets & Corporate Affairs, India Infoline told Moneycontrol.
He expects 11,800-11,850 on Monday and sees action in midcaps.
"Correction seems to be over in midcaps which are underowned for a long time."
Bhasin says that India is a strong demographic country and Nifty is definitely going to touch 12,000 by Diwali.
Sujan Hajra also said the strong GDP numbers bode well for both equity (especially consumption theme) market and debt market.
Another indication for expectations of a rally on Monday is the short covering in last hour of trade on Friday ahead of GDP data, experts said. The Nifty recovered around 35 points from intraday low to close 3.7 points higher at 11,680.50.
"On Monday, we see short covering in PSU banks, power, pharma etc and all these will outperform considering the short covering in last hour of trade on Friday which helped the market closed flat with a positive bias," Bhasin said.
One should stay invested in the market with 3-5 years view as India has miles to go upside, he advised.
Shailendra Kumar, Director & CIO, Narnolia Financial Advisors said the market is still on an upward trajectory and easily priced in Argentina Peso and Turkish Lira fall.
So strong GDP growth rate is another positive news that can push Nifty up by 100 points but if anything major happens globally then gains could be trimmed, he added.
On the global front, US markets closed mixed on Friday but logged strong monthly return for August since 2014 despite trade tensions. Even the Argentina Peso and Turkish Lira stabilised on Friday. Crude oil prices have also stabilised on last day of the week after a sharp run on supply concerns.
Shailendra Kumar feels the pace of fall in rupee will also gradually be reduced going forward, though some more correction is still possible.
"Market is trading at 22 PE now, which indicates that there is still headroom for upside. We target FY19 earnings per share at Rs 550. So if the Nifty by end of 2018 or in January 2019 goes around 13,100-13,200 then on FY19 EPS estimates valuations move up around 24 PE which would be profit booking point for investors," he said.
Teena Virmani, Vice President – Research, Kotak Securities also said these are good numbers and the market will definitely take it positively on Monday, but global events such as trade tensions, Fed meeting on rate hikes, Brexit discussions, Italian budget etc are likely to keep markets volatile.
Sentiment effect is definitely there, but one thing that worried experts is that these numbers are on low base and they expect some moderation in growth in second half of FY19, which may average the full year growth around 7.5-7.7 percent or similar to Central Statistical Organisation’s prediction of 7.5 percent.
"The market is expected to react positively on Monday but one should keep in mind these numbers are on low base and the market is smart enough to understand the same. So overall it would be sentimental effect," Gaurav Dua, Head of Research, Sharekhan said.
"If we look at internals, manufacturing number at 13.5 percent is not normal. So GDP numbers will be moderating for the next three quarters to come. Consensus GDP estimates for FY19 would be around 7.4-7.8 percent," he explained.
Sujan Hajra of Anand Rathi Financial Services said with this quarterly growth number, India seems to be poised to post 7.5 percent plus growth for FY19.
In an interview to CNBC-TV18, Indranil Pan of IDBI Bank, who also expects full year growth around 7.5 percent, said GDP numbers are good as he was expected at around 7.8 percent for the quarter but increase in oil and finance cost may pull down numbers going ahead."First half is quite good on base effect but second half will be lower than first half, so the actual numbers may be around 7.5 percent," he explained.