Private weather forecasting agency Skymet raised its monsoon forecast to 109% of the long period average vs. 105% earlier on the back of waning El Nino, improving market sentiments early during the week. It forecast copious rains in July (108% of average), August (113%) and September (123%) though lower rains in June (87%).
As for quarterly earnings results, quite a few big companies including L&T delivered good set of numbers, lifting market sentiments further. L&T’s Q4FY16 earnings beat was driven by large projects reaching margin recognition stage, and strong order inflow surprised positively. L&T is currently favorably placed in large projects worth ~Rs 300 bn in power, metro, defense and hydrocarbon; we expect strong order growth in FY17 driven by orders from power segment on new emission norms, expected USD 1 bn order from Saudi Aramco in hydrocarbon, defense, and Mumbai Metro.
On the other hand, SBI, following on the heels of some of the other larger banks, reported a 66% fall in net profit, on ~90% rise in provisions. This is the sharpest fall since the bank posted 99% fall in net profit in March 2011. This is in the wake of RBI’s asset quality review in December where it directed banks to provide for stressed accounts over six months between October 2015 and March 2016. Following this, a spate of banks has reported a sharp drop in their quarterly profits as a result of huge rise in provisions.
Going forward, market will have its eyes trained on the typically dovish Fed (Federal Reserve) chair for hint on the timing of the next interest rate hike. Hawkish tone in the minutes of last policy meet and a string of Fed officials insisting that the June meeting was ripe for a hike forced markets to recalibrate expectations of Fed tightening. This had pushed the odds of a rate hike in the next meeting from ~40% after release of the minutes from just 4% before the meet. However, Fed fund futures have since backed down to 28%. The markets are pegging the probability of an interest rate hike at the following meeting in July at 53% now.