June Jumble Solved
The domestic equity market has entered a consolidation phase with the benchmark indices trading flat for the past two months.
“April and May have just been phases of consolidation after the big March rally. April saw 1 per cent gains while May is plus/minus within that 1 per cent range,”
With the earnings season all but done with and May nudging towards its end, most analysts believe June could cast further shadow on the market with major events both home and abroad aligning against it.
Here is a list of five events investors need to keep an eye on as we move into the crucial month of June.
1) RBI’s June meet:
With monsoon delayed, CPI inflation ticking northward and food inflation showing little signs of abating, the Reserve Bank of India’s June 7 rate-setting meet will be crucial for the market.
Rate cut expectations are minimal after the inflation data but investors will be keenly watching out for the central bank’s commentary on further rate cuts, the inflation trajectory as well as speculation over a second stint for Governor Raghuram Rajan.
“Any disappointment or a neutral stance from RBI could possibly keep the market volatile in June”.
2) A rate hike by the US Fed:
Minutes of the last Federal Open Market Committee (FOMC) meeting in the US caught the market on the wrong foot last week as it suggested that the central bank could move for an interest rate hike in June. Before the FOMC minutes, Fed funds futures suggested a 4 percent probability of a rate hike. Today it stands at 30 per cent.
“Based on the FOMC meeting notes, it looks like there could be a rate hike in June. It is against the conventional experience that there is normally no rate hike during the precedential election cycle. So definitely the Fed must have strong reasons to go for it”.
That conventional experience was thrown out of the window after San Francisco Fed chief John Williams suggested that the Fed will proceed with a rate hike if the economy supports it regardless of the presidential election.
3) Monsoon progress:
Perhaps one of the biggest triggers for the market this year, the monsoon is expected to hit the Kerala shores in full force by June 7, as per Met department estimates.
The spatial distribution and the amount of rainfall is a crucial factor that investors and analysts will watch closely. The extensive heat wave in most parts of North India has already delayed the kharif sowing season, which may further inflate food prices for the coming months.
“Going by current patterns of rains some parts of India has received, the June monsoon could be more cyclonic in nature. Met prediction is that June rainfall will be little below average whereas July and August will be above average rainfall, taking the whole monsoon outcome above average for the season”.
4) Brexit conundrum:
One of the most important geopolitical events of the year will see the United Kingdom vote to remain or leave the European Union on June 23.
Early polls indicate that the ‘remain’ vote is leading, but experts believe it’s still a tight race. Policy think-tanks, economist and market experts have all warned against the catastrophic impact it can have on market sentiments.
“When you invest ahead of a major event like Brexit, it is going to have an effect on all your investments because it will most likely herald the end of the European project, which in itself creates huge macro and global uncertainty,” warned Dominic Johnson, CEO, Somerset Capital Management.
A year ago, Grexit had investors biting their nails till the last moment. One can only imagine similar scenes developing in the runup to June 23.
5) Portfolio rejig post FY2016 report card:
The market has entered the final leg of March quarter earnings and with the good numbers out, the worst has been saved for the last. “There will be a reflection of the results, which are going to come through now in June. We have seen many of the PSU banks declaring huge losses. In some sense, the market has digested all the good results that have come out so far. Now it is bracing for the bad ones”.
Index heavyweights such as State Bank of India and Larsen & Toubro are expected to come out with their numbers along with 816 other companies this week, whose impact could be felt well into the first week of June.