It was an eventful four-day trading week in which markets made new lifetime highs. The BSESESENSEX touched a new high o 40,312.07 points while NIFTY touched 12,103.05 points. Markets gained on two days and lost on two. BSESENSEX lost 98.30 points or 0.25% to close at 39,615.90 points while NIFTY lost 52.15 points or 0.44% to close at 11,870.65 points. The broader indices saw the BSE100, BSE200 and BSE500 lose 0.52%, 0.59% and 0.68% respectively. BSEMIDCAP lost 1.26% and BSESMALLCAP lost 1.41%.

The closing levels do not give the sense of trading volatility that happened during the week. The high made during the week was 40,312.07 points and the low 39,279.47 points. The swing was 1,033 points and the close reflected a mere change of 98 points. Similarly, on the NIFTY, the high was 12,103.05 points and low 11,769.50 points, a range of 334 points and the net change 52 points.

Dow Jones had a stellar week with it gaining a massive 1,168.90 points or 4.71% to close at 25,983.94 points. The expectation is that US FED is willing to cut interest rates repeatedly to inject growth in the economy. The Indian Rupee gained 21 paisa or 0.30% to close at Rs 69.47 to the US Dollar.

RBI cut interest rates on expected lines by the customary 25 basis points. Repo rate is now 5.75% and it is at its lowest level since 2010. What is important to note is that the stance has been changed from neutral to accommodative and this indicates that more cuts could follow.

It is on the NBFC front that not much has happened and while the contentious circular struck down by Supreme Court maintains its spirit, the same looks mildly different in reading. The crux of the problem being faced by NBFC’s is that they have been lending to riskier propositions and charging higher rates of interest and trying to maximise profits. In this process they have been taking risks far greater than what even banks would take when lending to lower rated borrowers. When issues emerge in the market place, it first affects the lower rated clients and this is what has happened.

Another issue that has cropped up with the housing finance NBFC’s is their exposure to bulk loans and developers. With a slowdown in the realty space, they are stuck with no rotation of their loans and the developer not able to pay up as he is not having sales of property. It truly is a ‘catch 22’ situation. What can RBI actually do in this situation or putting it in another way, what do people expect RBI to do when lenders have not followed prudent norms beats me.

Monsoon has hit the coast of Kerala on Saturday. It is delayed by about a week. It would travel over the next 5-10 days to break over Mumbai, the financial capital of India. The progress of monsoon over the rest of the country, its impact positive and negative on various sectors would now become a talking point for the electronic media. They would ask guests on which sectors would do well and which would get impacted as a result of the monsoon.

The next leg of the rally should see the markets becoming broader based and encompass the midcap and small sectors as well. So far, the same has not happened but hopefully it would. The Union budget is to be presented on the 5th of July and budget expectations and wish lists would become the talking point in about ten days’ time. While expectations are largely not met or fulfilled, some part of it does materialise. It would be interesting to see what the market is expecting this time around.

There seems some light at the end of the tunnel in the DHFL case. They have paid the interest and the principal due to fund houses from the sale proceeds of their investments. The proceeds from sale of stake in Aadhar Housing Finance Limited sold to Blackstone is likely to happen in a day or two. If this happens, a large part of liquidity mismatch would temporarily get adjusted.

Coming to the week ahead one would see markets remaining choppy and volatile. There would be sharp bouts of rise and fall as a significant segment of people believe everything is priced in and there is no reason for markets to rise. When there is buying, this leads to short covering and bulls have their say. Similarly, when nothing happens or institutions sell, markets become listless and they tend to fall. This is when bears take the upper hand. This would continue with markets remaining in a broad range. Buy on dips and sell on rallies. There will be plenty of such opportunities.

Volatility of the kind that was witnessed in May would now come to an end and we would be entering the normal mode. First it was who would win the elections, then it was post the exit poll to actual results, and finally it was the cabinet formation. All of it are now behind us and markets look forward to Modi 2.0.

The benchmark indices have made new lifetime highs during the week. BSESENSEX gained 279.48 points or 0.71% to close at 39,714.20 points while NIFTY gained 78.70 points or 0.66% to close at 11,922.80 points. The broader indices saw the BSE100, BSE200 and BSE500 gain 0.73%, 0.77% and 0.82% respectively. BSEMIDCAP was up 1.01% and BSESMALLCAP gained 1.14%. The highs of the BSESENSEX was 40,122.34 points while it was 12,039.25 points for NIFTY.

May futures which was of five weeks and included the volatile and uncertain period of election outcome ended on a positive note. The series gained 304.10 points or 2.61% to end at 11,945.90 points.

Dow Jones was down sharply and lost 770.65 points or 3.01% at 24,815.04 points. The Dow seems to be caught in the thick of US China trade wars and technical analysts seem wary of the pattern emerging in the Dow. They believe this could be a head and shoulders pattern which is emerging and the breakdown of the same looks like playing out. This could be bad news for the Dow and probably the ongoing trade war, the issue with Iran and North Korea and of course the fight back home with Democrats may be some of the causes.

Modi 2.0 cabinet was sworn in and key cabinet members portfolio had some surprises. The administrative head of BJP who was widely believed to be given Finance was given Home Affairs. Similarly, the glass ceiling was broken when the former Defence Minister Nirmala Sitharaman was made the Finance Minister, India’s first lady at the post. Rajnath Singh was allotted Defence Ministry. Piyush Goyal was given his Railway Ministry with added responsibility of Commerce and Industry. As much as 40% of the outgoing ministry has been dropped and a 58-member strong cabinet sworn in. There is scope for up to an 81-member cabinet permitted.

Economic data during the week saw GST collection cross the trillion mark for the third consecutive month. The target for GST collection has been revised upwards but it still gives comfort. It would be interesting to see what changes the government does bring about to moving to one rate of GST in the budget slated for 5th of July. While it would not be one change on a single day there would be a gradual merging of rates over time.

GDP for the fourth quarter came in at 5.8% and for the full year 2018-19 at 6.8%. It’s a definite slowdown and would act as a strong reason for RBI to cut rates when it meets on the 5th and 6th of June for its monetary policy review meeting. With the same government coming back to power with a bigger mandate, inflation and fiscal deficit would certainly not be on the mind of RBI when they meet. While customarily they have changed the policy rates by the customary 25 basis points there is a strong case this time of taking a bigger cut. I believe the same could be 50 basis points this time around.

Maruti reported its poorest sales number in over seven years with sales at 1.34 lac vehicles, down almost 22%. Other auto companies too saw a slowdown. Maruti believes that sales would grow between 4-8% in the year 2019-2020. While if that happens, it would be a relief, currently the auto pack is under pressure.

Markets going forward would see the breadth improving with stocks from midcap and small cap participating in the rally. With the focus of the government spelt out and they hitting the ground running, one would see focus on job creation, reviving the economy and kick starting the same. With the fiscal deficit on track at 3.45% of GDP or 6.45 trillion, they can easily afford to loosen the purse strings and ‘buy growth’.

Markets would remain volatile but significantly less than what we saw in the last fortnight. Global cues particularly the US are giving one a feeling of being negative for the time being. In India we have expectations of a bigger rate cut in the coming week which would keep markets on their toes and react to the news as and when it does actually happen. The key for the markets would however be the broadening of the market depth. While the upside seems likely to remain reduced, it certainly does not mean the end of the rally. Select fundamentally good stocks as growth in infrastructure would be the key for job creation, kick starting the economy and the next round of reforms.