Markets Poised For A Breathe Easy Week

If you were on a roller-coaster ride last week, you can breathe easy as the choppiness seems to be behind us. Late last week's late, but spectacular rebound has bought relief to investors worried about stock prices. All the indicators and sentiments now point to a recovery this week as the major indices are at critical support levels. The carnage selling has eased. We are in for better days.

Oil price, which has been one of the major spoilsports globally, has stabilized at these levels and has been bouncing back to levels of $30 per barrel. Another late recovery, spurred by comments by the European Central Bank chief Mario Draghi, drove commodity prices higher.

A US Fed FOMC meet slated for this week is expected to go easy on the rate hikes, but market watchers will be looking for comments on the growth and policy targets. If there are signs that the US Fed may be accommodative to prod global growth, the markets could be in for some higher days ahead. Investors will also be watching a Bank of Japan meeting for signs of further bond buying. Hence, the undertone of the market is upbeat.

The earnings season is off to a better-than-expected start with many companies showing better margin growth due to lower input prices and commodity costs. IT sector results has been a mixed bag and could continue do so. Some companies that are revamping their business models are clocking better growth rates. Private sector banks have delivered a robust credit growth rate, and make good additions on dips.

Frontline stocks such as Maruti, HDFC Bank, Bharti Airtel, ICICI Bank are poised to deliver their results this week, while analysts do not expect any major surprises from these banks.

That said, the issue of foreign investor selling that has been worrying the markets is not going to go away in a hurry, so there will be bouts of choppiness. Most sovereign funds are still selling in emerging markets to compensate for their losses due to lower oil prices.

In January so far foreign investors have sold stocks worth Rs 13,500 crore, while domestic investors matched their selling buying stocks worth Rs 11,500. The intensity of the selling is showing signs of easing at lower levels.

Last week's market carnage took a toll on select private and all the PSU banks and many of these stocks lost almost 50 percent from their peak values around March. But a sharp recovery towards the end of last week pushed the stock prices higher. Axis Bank gained 15 percent from its low to close at Rs 425. Some of the PSU banks also recovered sharply and could be contrarian bets as these banks could recover from the non-performing loans issue in a few years as interest rates are soft.

Bottom-fishing is the name of the game. Investors can look at any bouts of sharp corrections to add good stocks to their kitty. The fundamental story of India Inc is expected to get better in the coming years. Add small tranches of quality companies whenever the market corrects. Prices of some stocks are turning attractive at these levels, but investors should also be cautious about the downside.

Chance are, foreign investor selling could hit the market on occasions, so keep a buffer to average your buying costs at lower levels.