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Domestic markets to maintain bullish momentum in early part of Tuesday. Analysts, however, expect a profit booking in the later part of the day with crude oil prices at elevated levels.
SGX Nifty at 18,190 indicates a gap up opening of about 100 points as Nifty futures on Monday closed at 18,098. Equities across Asia-Pacific region except the markets in Australia and New Zealand are down marginally, giving a mixed signal to domestic markets.
“Given the headwinds of increased petroleum costs, inflation, and other variables, FPI flows are expected to remain unpredictable in the immediate term,” said Mohit Nigam, Head - PMS, Hem Securities.
Robust economic activity
However, according to analysts, the underlying domestic economic activity remained robust with GST collection registering an all-time of ₹1.42 lakh crore in March; Purchasing Managers’ Index (PMI) for Manufacturing ruling firm at 54; and exports showing highest ever figure of $418 billion.
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In the immediate-term, market may remain firm due to a healthy fund flows, said experts.. But, in the medium-term, how India Inc cope up with the rising input costs and manage their margin will be crucial factors for further up move, they added.
Headwinds
According to Motilal Oswal Financial Services, "As we step into FY23, we believe, the next two quarters are going to see a sharp margin impact and corporate commentaries will worsen before it gets better. Secondly, while the Nifty has not seen much earnings downgrade so far (thanks to upgrades in Metals/O&G and neutral to no impact in IT/BFSI), the broader universe is clearly bearing the brunt of commodity cost inflation — a trend we saw even in 3Q FY22 corporate earnings season."
"If the input cost situations do not improve and price increases become inevitable, we are not too far away from some demand dislocation in an already weak economy," Motilal Oswal said in a note.
Softening volatility index
According to Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd, this week’s RBI Monetary Policy meeting outcome would drive the market and banking stocks are likely to remain in lime light. Q4 results announcement would also kick start with IT companies which would be tracked closely by investors.
"India VIX is down to 18 zones and has been shredding from higher zones which is giving comfort to the bulls. Now Nifty has to hold above 17700 zones, for an up move towards 18350 zones," he added.
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