Stock markets to remain cautious and volatile ahead of F&O expiry

The Indian equity market lacks a trigger, making it difficult for analysts to take a call on stocks. Indeed, it is becoming difficult to predict the market at the current levels. While most market participants believe that bulls have the upper hand, they remain wary as valuations appear stretched.  
 
Untimely rains damaging crops in north and west India is weighing on the market sentiment. There are concerns that it will put pressure on food prices, restricting the Reserve Bank of India (RBI) from cutting rates.  
 
The next trigger for the market will be the March ending results which would be unveiled from the second week of April. The results would depend on capacity utilisation, working capital cycle, commodity prices, inventory losses, investment and execution of existing projects over the last few quarters. It is hoped that capacity utilisation across sectors will start inching up as new capacities are not being added. Lower interest rates and lower commodity prices will reflect in better margins over the coming quarters.
 
The Indian market appears to be better placed than its peers but a lot would depend on foreign flows. While foreign investors are positive on the Indian economy, they feel that the Modi government should have pushed through more reforms. "Modi is not negative for the economy but it seems he is operating under constraints." said investment guru Marc Faber in a recent interview with Business Today. He doesn't see India garnering a large share of global flows. Investors are underweight on India because between 2007 and 2013 India disappointed and had a weak currency, according to Faber.
 
If India wants a large share of global capital flows, it needs to record  robust GDP growth. "Forget 8-8.5 per cent, even if India grows at 6 per cent per year, it would see huge interest among investors," said Faber, adding that  the "global economy is still slowing down. It isn't a recession but a no growth environment."
 
The valuations in most part of the globe, especially US, are not compelling, said Faber. Interest rates are already low in the US and there is no headroom for a further cut, he said. On the other hand, for a country like India there is still scope for a further cut in interest rates, added Faber. "I think India can cut up to 200 basis points," he said.
 
Now, given the weak global economy and the potential for growth in India, every correction will be an opportunity to pick stocks but  investors should keep valuations in mind. Meanwhile, this week the equity market will remain volatile and cautious ahead of the F&O expiry on Thursday.