Pulled by foreign currency, Indian stock indices continue to climb. The news of successful vaccine trials with greater efficacy has given sentiment a big boost. At the same time, the risk of another wave of infections is still not ruled out. In the West, cases of Covid are increasing; in India, some restrictions are imposed at the regional level.
But the market, which seems confident for a faster economic recovery, has so far dismissed this concern. The key Indian equity benchmark Nifty, which currently sits at 12,859 levels, may soon hit the psychological mark of 13,000 if momentum continues.
Speaking of economic recovery, data for India’s third quarter gross domestic product will be released on November 27. Many economists believe that the contraction in trade activity moderated considerably during the September quarter. According to Bloomberg, India’s third-quarter GDP forecast is -8.6%.
“India’s decline in GDP likely moderated sharply to -9% year-over-year in the third quarter, from -24% in the second quarter,” said Miguel Chanco, senior economist for the Asia at Pantheon Macroeconomics in a note of November 20.
“The rapid recovery in industrial production in recent months is probably the main reason for the more optimistic outlook for the third quarter. Importantly, the demand side indicators for the third quarter were weaker. Passenger car sales almost quadrupled from the Q2 nadir, on our adjustment, but that only brought sales to 88% of last year’s Q3 level. Now that car sales have returned to their long-standing downtrend, it’s hard to see a continuation of the recent momentum. Most of the improvement will likely come from investing, in part because the base effects are more favorable as they were hit harder in the second quarter, “he added. That said, Chanco said. , the rebound in Indian GDP in the third quarter will be a very difficult act to follow.
Shilan Shah, Senior Economist for India at Capital Economics Ltd, issues a similar caveat. “The encouraging improvements since then – especially towards the end of the third quarter – mean that production is expected to have fallen 8.0% year-on-year in the last quarter. Going forward, an effective and widely distributed vaccine could be a quick fix and lead to a faster economic recovery next year than we currently anticipate. But there are still a lot of headwinds. Even widespread vaccination would not bring India back to economic health, as lukewarm budget support and a beleaguered banking sector will weigh on economic growth long after the virus has been brought under control, “he said in a November 20 note. .
Note that data for the main infrastructure industries for October will also be released on November 27.
Analysts say that after the recent recovery, positives such as decent September quarter earnings and vaccine-related developments are all taken into account. They believe that given the lack of major near-term upside triggers and strained valuations, Indian stocks should consolidate at current levels. They also warn of increased volatility as November futures and options series expire this week.
On the sectoral level, Bank Nifty will probably be at the center of the concerns. Last week, the Reserve Bank of India (RBI) imposed a moratorium on ailing Lakshmi Vilas Bank and forced a merger with the local unit of Singapore’s biggest lender, DBS Bank.
Second, the RBI panel on Friday recommended granting banking licenses to large industrial houses. This potentially paves the way for Aditya Birla Group, Tata Group and Reliance Industries Ltd to apply for banking licenses.
With expectations for the economic recovery to gain momentum, consumer and pharmaceutical stocks would also be on investors’ radar screens. Among the consumer discretionary space, shares of Titan Co. Ltd. hit a new high of 52 weeks on Friday after the company said its jewelry business saw annual growth in mid-teens (around 15% ) for the 30 days of celebrations from Dussehra until Diwali.