Market Outlook

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Market saw a 2nd half recovery to close at a record high on optimism that the new government will deliver a fiscally prudent budget next week. Benchmark indices gained over 3% for the week led by Automobiles, Power & Capital Goods. FIIs, who have been the backbone of the 23% gain in the broader market so far this year, invested about ~53 billion rupees during the week. Global cues remained supportive on growing optimism about the U.S. economy after the latest jobs report showed a bigger than expected surge in job creation last month pushing the jobless rate down to almost six year low. Meanwhile, ECB President said that the euro area interest rates are set to remain low amid low inflation and as the liquidity measures announced last month are expected to boost lending to the real economy. Domestically, HSBC manufacturing PMI rose marginally from 51.4 in May to 51.5 in June on the back of greater domestic and foreign demand. HSBC Services PMI rose to a vigorous 54.4 points in June from 50.2 last month on the strength of robust order flow, indicating rising optimism in the sector that has a share of more than 60% in the economy. Next week is the Budget week with the 1st budget by the new NDA government. It is likely to be more of a vision statement rather than actual numbers. Fiscal consolidation, manufacturing recovery and inducing foreign flows for growth capital will likely be key focus. We continue to be overweight cyclicals including industrials and utilities. The week will also see kick start of the result season with Indus Ind Bank and Infosys slated to announce results later during the week. Investors will be closely watching guidance for the year.

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