The coming week is likely to be heavy on data flows. Apart from the quarterly results starting with Infosys, there will be the CPI inflation data and the IIP data that will come out this week. Nifty is likely to be sharply predicated on data flows during the week. The IIP number becomes critical especially considering that the core sector, which accounts for 40% of the IIP, has shown signs of weakness. The CPI inflation will be a critical input in the RBI policy stance when it meets on August 01st. But the immediate triggers for the market will be the progress on trade war and dollar strength.
That brings us to the very critical variable of the rupee-dollar parity rates. INR has held Rs.69/$ but that has been more an outcome of RBI defending the rupee at that level by selling dollars. A lot will depend on oil and dollar movements. Even as the RBI continued to defend the Rs.69/$ mark, the big risks for the rupee this week are expected to be the prices of crude oil and the strength of the dollar, post trade tariffs. It is expected that the dollar could strengthen and that crude could get back to the $80 mark if the pressure of oil supply post Iran sanctions starts manifesting.
Saudi Aramco may put off its Aramco IPO for the time being. Under the leadership of Prince Salman, the Kingdom of Saudi Arabia was targeting a $2 trillion valuation for Saudi Aramco. While most analysts felt that the valuations were quite ambitious, that would have been feasible if the oil prices had continued its uptrend. However, Aramco is worried that crude prices may not be conducive for an IPO at this point of time. The US has put pressure on Russia and OPEC to increase production and has also warned them of flooding the world oil markets with US oil. Aramco may wait for a better opportunity for the IPO.
The Indian IPO market continues to be buoyant in the calendar year 2018. IPO fund raising doubled to Rs.23,760 crore in first half of 2018, compared to the corresponding period last year. During this period, there were some heavyweight IPOs like Bandhan Bank, HAL, I-Sec, Varroc and Indo Star, which jointly accounted for more than 60% of IPO monies. Interestingly, most of the PSU IPOs had to be literally bailed out by LIC after retail interest did not evince due to worries over valuations. In the second half of 2018, big IPOs scheduled for issue include HDFC MF, IRFC, IRCON and Rail Vikas Nigam.
The next few months could be critical in judging what will be the Kharif output for the year 2018. To the benefit of the agricultural sector, all the pegs seem to be in place. Rains arrived on time, the monsoon has been well spread and sowing season has gone ahead as planned. The aggressive MSP has also come in a shot in the arm for farmers and that is likely to give a boost to investments by the farmers in farm inputs like agrochemicals, hybrid seeds, fertilizers, drip irrigation equipment etc. The 2017 Foodgrain output of 280 million tonnes could be bettered this year due to a mix of good monsoons, better crop productivity and favourable Minimum Support Price (MSP) announced. The only catch is that apart from the MSP fixing, the way the actual procurement is done is what matters from a practical perspective.
The falling rupee continues to put pressure on the forex reserves with the RBI. Forex reserves in the 3rd week of June fell to $406 billion. Forex reserves have depleted by nearly $20 billion in the last couple of months as the RBI has been aggressively trying to defend the rupee by selling dollars in the forex market. This also creates another related challenge for the RBI. Indian imports could cross $550 billion and the current forex reserves cover only 9 months of imports. That is way below the benchmark that most of the other BRICS nations are currently maintaining as forex reserves.
