The July-September period is expected to be a “better quarter” for equities with a possible improvement in domestic news flow even as global events will keep volatility “elevated,” says a Morgan Stanley report.

According to the global financial services major, the bouts of volatility in the market that was witnessed in the April-June quarter, is unlikely to subside in the current quarter.

“... it is possible after a tepid second quarter performance, Indian equities may have put a floor for current calendar year,” Morgan Stanley said in a research note.

‘Perceptible improvement’ The global brokerage expects earnings to be a tad better for the quarter ended June with a “perceptible improvement” in the September quarter.

“We expect government spending to rise, the GST bill to be cleared, inflation to continue to moderate, more rate cuts in the second half of 2015, and earnings to be better than in the previous two quarters,” the report said.

Meanwhile, the government has budgeted ₹69,500 crore for divestments for this fiscal year — a sharp rise over previous fiscal with most of it yet to be done.

“We also expect more IPOs and other follow-on offerings in the coming months as companies raise both growth and balance sheet repair capital,” the report added.

Notwithstanding a q-o-q improvement, volatility in Indian equities is expected to continue, largely owing to the US Fed moves and other global factors.

“Global growth, China growth, oil prices, Grexit, emerging market news flow and US Fed moves as an indicator of global liquidity, among other things, are factors to watch,” the report said.

On rate cut, the report said that “a further 50-75 bps of policy rate cuts for fiscal year 2015-16 is premised on further weakening in the inflation data.”

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