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No panic on D-Street after 4.5% GDP print; some expect Santa Rally ahead

Capitalstars Investment Advisor
Despite a six-year-low GDP growth print, analysts do not expect market participants to press the panic button on Monday, as the market had already priced in a disappointing outcome and many growth projections for the quarter were worse than the actual footprint.

The market may, at the most, see a gap-down start on Monday, with no significant follow-up selling. All eyes will now shift to auto sales numbers to be released on Monday and RBI’s forthcoming policy review on December 5, where the central bank is widely expected to announce another 25 basis points rate cut. Analysts say another rate reduction is now a given post poor second-quarter GDP print.

The government, they noted, is doing its bits, with labor reforms already tabled in the winter session of Parliament, which concludes on December 13. Liquidity globally may continue to play a role in driving the domestic market, they said.

On Friday, data showed GDP growth fell to a six-year low of 4.5 percent in the September quarter. Fiscal deficit, the gap between expenditure and revenues, hit Rs 7.2 lakh crore during April-October, which was 102.4 percent of the full-year target.

Dharmesh Kant of IndiaNivesh said the ministry stated that the GDP growth will bounce back in Q3 should support the market, which is eyeing another round of rate cut from RBI next week.
“Even if we see a gap-down start to Monday’s trade, it may unlikely to trigger follow-up selling. The fall would get arrested quickly. This entire rally has been liquidity-driven. Historically, it may be the first time when the market has been touching new highs despite macro numbers being so poor,” Kant said.

On Friday, Sensex fell 336 points, or 0.82 percent, to 40,793 ahead of the GDP print. Nifty50 barely closed above the 12,050 marks.
Sensex fell 336 points, or 0.82 percent, to 40,793 ahead of the GDP print. Nifty50 barely closed above the 12,050 marks.

Amit Khurana of Dolat Capital said he does not see any kneejerk reaction as the numbers were discounted to the tune of 4 percent growth. “All eyes would be on the RBI rate cut. We think RBI will keep cutting rates and supporting the market with statements of being accommodative. Execution is likely on the fronts such as the real estate AIF fund,” Khurana said.

“To me, more than Budget expectations, the market will look at bank credit data, core sector growth, export-import data, oil consumption, auto sales numbers and other key variables for signs of demand recovery,” said G Chokkalingam of Economics Research and Advisory.

Instead of a selloff, AK Prabhakar of IDBI Capital expects the market to see a Santa Claus rally, led by FPI flows into emerging markets. “Frankly, I was expecting a GDP growth figure below 4.5 percent. For me, it’s a slightly better number. We are readying for a Santa Claus rally and other factors will take a backseat. Besides, as economic growth has fallen, government spending will rise, the disinvestment process will take off and market participants will be watching that keenly,” he said.
Prabhakar said once Nifty50 takes out the 12,200-12,300 zone, the broader market will follow the trend. “The winter session is underway. The government is doing many things including amendment of IBC and labor laws. In February Budget also, we see some tinkering with income tax,” he said.
After the fiscal deficit numbers, analysts said while eyes would be on the broader Rs 1.05 lakh crore disinvestment revenue target for FY20, investors would be keenly following any strategic sale of attractive assets that could unlock significant investors value.

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