Markets logged their second week of gains as earnings season kicked off on an optimistic note. The Nifty crossed its all-time high, ending the week at 10,167 with gains of 2 percent. Mid- and small-caps clearly underperformed with the focus remaining on large-caps as key frontline companies announced their results.

Buying remained frantic ahead of the festival season driven by liquidity and on expectations that the Reserve Bank of India (RBI) would cut rates on better-than-expected CPI inflation data. The results season opened with companies such as Reliance Industries, IndusInd and TCS reporting in line or better-than-expected numbers.

The rupee continued its run against the dollar and ended at a fresh three-week high of 64.93 after a positive set of macro data and robust equity market performance.

Bharti Airtel was in the limelight after it announced it will acquire Tata Teleservices' consumer mobile business with over 40 million subscribers spread across 19 circles on a cash-free, debt-free basis. Benefits from additional spectrum, fibre assets and subscribers will more than offset the additional spectrum liabilities. We will continue to see consolidation in a sector shaken up by Jio’s entry.

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The IMF in its latest World Economic Outlook raised its growth forecast for the world economy to 3.6 percent from 3.5 percent. But it lowered India's economic growth for 2017 and 2018, citing the lingering impact of demonetization and Goods and Services Tax (GST). It projected India to grow at 6.7 percent in 2017 and 7.4 percent in 2018, which are 0.5 percent and 0.3 percent less than the projections earlier this year, respectively.

The World Bank has also lowered its India growth projection and expects FY18 growth rate to be 7 percent. The World Bank noted that the most substantial medium-term risks are associated with private investment recovery, which continues to face several domestic impediments.

On the GST front, the finance minister said that there was a strong case to bring the real estate sector under the ambit of GST as the maximum amount of tax evasion takes place in this sector. Separately, the government said it will review items falling under the highest tax slab of 28 percent after three months with an aim to rationalise rates on goods of mass consumption. The review will be subject to revenue implications any change in rates will have on government finances.

On the macro data front, IIP grew to a 9-month high of 4.3 percent in August as restocking of manufactured items gained momentum after the initial blip caused by GST implementation. A higher-than-expected demand on account of an early festival season also bolstered factory output. September CPI inflation remained static at 3.28 percent. India’s trade deficit narrowed in September as gold imports declined for the first time since January.

Globally, reports suggest that the ECB may reduce its bond purchases to €30 billion per month from January and simultaneously extend the duration of the QE programme by another nine months to at least September 2018. The U.S. Federal Reserve released the minutes of its September FOMC meeting and it was the reaffirmation of a widely expected December interest rate hike, despite the Fed’s concerns about low inflation.

GIC IPO, the largest in recent times, got a lukewarm response, despite being reasonably priced. The issue had an overall subscription of 1.37x with QIBs at 2.25x whereas the rest of the categories were under-subscribed. LIC accounted for over 50 percent of the bids.

The coming week is a truncated one as trading will be shut for two days on account of Diwali. The markets on Monday are expected to react to Q2 numbers of Reliance Industries which were a mixed bag. The GRM was lower than expected at $12 although higher than the previous quarter. The EBITDA margins and PetChem margins were much better than expected. A surprise was the meagre loss of 2.71 billion rupees for the Jio business where analysts were expecting a much bigger loss. The result season has picked up steam and the frontline companies set to announce their numbers this week include ACC, Axis Bank, Bajaj Auto, Wipro and UltraTech. Expect some good numbers initially.

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On the macro front, the government will announce WPI inflation data for September on Monday. The Economic Advisory Council to the Prime Minister has advised him to stick to the fiscal consolidation route and that no stimulus package should be at the cost of fiscal prudence. With various state polls lined up before the 2019 election, I wonder how the government would provide various goodies as well as shore up the economy without sacrificing fiscal prudence.

Every dip is being bought into as liquidity continues to flow unabated. At the risk of being repetitive, I would again say that liquidity not supported by fundamentals always causes a bubble and it proves the naysayers wrong for a long time, testing their patience.

(Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.)