Mumbai, May 17 (IANS): The start of government's disinvestment process, arrival of the monsoon, cooling of commodity prices and signs of the apex bank's intention to cut policy rates will play a major role in valuating Indian equities in the comming days, market watchers said.
"Major triggers like Greece and the parliament session have come to an end. The markets will now be a bit volatile and look at international cues for further guidance," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
According to Nevgi, the high US and European bond yields that played havoc in the Indian markets last week by sucking-up funds have cooled-down and foreign investors are likely to turn net-buyers.
"The extreme upward yields in the US and Germany have come down a bit. Greece has been able to pay its dues on time, even the international commodity prices are seen to be stabilising, all these factors will help the Indian equities market," Nevgi said.
"While other major emerging economies like China, South Africa and Russia are currently seen as attractive options, the correction in the Indian markets over the last two-weeks will drive-in the short-medium term investors."
Nevgi added that the corrections have driven stock valuations closer to their long-term returns average, thus making them cheaper for investments.
"The tactical rotation of funds from India-China or commodities markets will return once the valuation becomes cheaper and more economic reforms take place. The country's fundamentals are strong and have the ability to attract long-term investments," Nevgi added.
Dipen Shah, head of private client group research with Kotak Securities, pointed out that threats of negative global cues still persists such as the economic situation in Greece, further growth of Chinese and Russian markets and escalation of commodity prices.
"If the Greece situation further weakens, then the bond yields might surge further. This might lead to further weakening of the rupee and the downward spiral cycle will restart," Shah said.
Last week, US bond yields surged by 2.24 percent, while Germany's bond yields rocketed by 80 percent. This, coupled with the foreign funds out-flow due to the minimum alternate tax (MAT) issue, weakened the rupee's value.
On Tuesday, the Indian rupee's value further weakened against the dollar by around 17 paise and stood at Rs.64.17 per dollar. The rupee value currently stands at Rs.63.43 per dollar.
The MAT on capital gains is expected to impact the margins of foreign funds. This has hit their investment appetite for the Indian equities markets.
According to data with the National Securities Depository Limited (NSDL), the Foreign Portfolio Investors (FPIs) had turned into net sellers in the Indian equities markets. They off-loaded shares worth Rs.1,854.25 crore or $289.02 million for the week ended May 15.
According to Alex Mathews, head-research with Geojit BNP Paribas Financial Services, many domestic investors are waiting for the government to off-load stake in Indian Oil and NTPC.
On the positive side, Mathews said that both retail and wholesale price data was better-than-expected and have raised hopes of a policy rate cut by the Reserve Bank of India (RBI) in its next monetary review scheduled for June 2.
On Thursday, official data showed that the annual rate of wholesale price inflation (WPI) decelerated further to its lowest in six months. The WPI stood at (-)2.65 percent for April from (-)2.33 percent for the month before.
"The news on the RBI's intention on a rate cut in its next monetary policy and its efforts in persuading banks to pass on the benefit will play on the markets' minds. The news about the arrival of monsoon will also be watched with alot of interest," Mathews told IANS.