Globally, markets have been stable and strong last week, moving up in tandem. The ‘risk on’ that began in early March continued. The US Fed commentary on March 16 was dovish and on expected lines. While holding the rates, the Fed indicated that the probable rate hikes in 2016 would be two, instead of four that was indicated last December. The US economy continues to grow with falling unemployment and low inflation. The GDP growth rate has improved to 2.2% and unemployment rate has come down to 4.9%. Since inflation continues to remain below 1%, there is no urgent need to hike interest rate. While reiterating that further actions will be data-dependent, the Fed was appreciative of the global economic challenges and their impact on the global economy.
Chinese economic data will continue to be the most crucial factor in determining the global economic and market trends, going forward. A hard landing of the Chinese economy or a sharp devaluation of the yuan is not yet factored in by markets. Such an event, though the probability is low, still remains the major challenge to the global economy and markets. But, it appears that the probability of a Chinese hard landing is receding now. The Chinese authorities have been consistently reiterating that a hard landing of the economy and yuan devaluation is unlikely.
Meanwhile, commodity prices have staged a smart rebound. Brent crude, at around $41 a barrel, is up almost 50% from the recent lows. Metal prices have also staged a smart recovery. It appears that the worst is over for commodities. From the market perspective, a major positive of the commodity rebound is that FII selling in emerging markets has abated.
Sovereign wealth funds, who were major sellers, have stopped selling and FIIs have turned buyers. Emerging markets witnessed net inflows of $11 billion so far this month, and India too has benefited from this trend reversal. This has changed the sentiments for the better and consequently bears have been covering their shorts. This short covering along with bargain hunting in the beaten down stocks have enabled the indices to climb around 10% from the lows touched on the Budget day.
The Sensex and Nifty closed for the week at 24952.74 and 7604.35 respectively. Sensex has gained 1953.74 points so far this month. For Nifty, this is the highest closing level since January 8. Nifty gained on four out of the five trading sessions last week. IT, cement, metals and banking stocks did well. Vedanta and Hindalco among metals and Infy and TCS among IT, did exceptionally well. The pharma stocks were under pressure during the last two days following the USFDA’s comments on Lupin’s Goa plant. The spate of USFDA observations on many Indian pharma companies, including blue chips like Dr Reddys, Sun Pharma and Lupin, have impacted their stock prices and the pharma index. But, if one were to go by previous experiences, this would be a good buying opportunity.
■ Smart recovery in global commodities market last week
■ US Federal signals that the probable rate hikes in 2016 would be two, instead of four