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Indian equities end slightly in red for the week
Jul-20-2018

Indian equity benchmarks went for a roller coaster ride and ended slightly in red during the passing week. It turned-out to be a very volatile week of trade for the domestic bourses where bulls and bears seen playing tug of war throughout the week. Markets started the session on pessimistic note on disappointing macro-economic data. India’s trade deficit widened to its highest level in more than five years in June, driven largely by a surge in oil prices and a weaker rupee. The trade deficit widened to $16.6 billion from $14.62 billion in May. Moreover, India’s wholesale inflation grew 5.77% in June, a four-and-half year high, driven by some food items and fuel prices. Sentiments also remained dampened with foreign investors pulling out nearly Rs 1,200 crore from the debt markets in the first two weeks of the month on higher fuel prices and possibilities of rate hike by the US Federal Reserve. Markets recouped most of their losses on the very next day as optimism spread among the local traders with private report projecting the Indian economy to record 7.4% growth in 2018-19. Domestic gauges once again turned negative and extended losses for two consecutive session after Lok Sabha Speaker Sumitra Mahajan accepted the no-confidence motion moved against the BJP Government on the first day of the Monsoon Session that began in Parliament on Wednesday. Some anxiety was also among the local traders with report that India’s import bill of crude oil and petroleum products swelled 57% to $12.73 billion in June as compared to the same month last year. But, rally in final day of trade helped markets to trim almost all of their losses as traders took encouragement with industry body Ficci’s statement that despite short-term challenges, India’s economic growth story remains intact and the country’s GDP is expected to grow around 7.5% in the current financial year.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 45.26 points or 0.12% to 36,496.37 during the week ended July 20, 2018. The BSE Midcap index losses 235.01 points or 1.52% to 15,196.46 and Smallcap index slipped 474.9 points or 2.93% to 15,721.43. On the sectoral front, S&P BSE Oil & Gas was up by 237.38 points or 1.68% to 14391.82, S&P BSE Information Technology was up by 186.46 points or 1.30% to 14572.16, S&P BSE Consumer Durables was up by 207.76 points or 1.05% to 19972.61, S&P BSE TECK was up by 58.87 points or 0.81% to 7355.79 and S&P BSE Finance was up by 13.16 points or 0.22% to 6027.86 were the top gainers on the BSE sectoral front, while S&P BSE Metal was down by 740.37 points or 5.94% to 11730.53, S&P BSE Realty was down by 85.50 points or 4.15% to 1975.54, S&P BSE Healthcare was down by 395.73 points or 2.82% to 13661.34, S&P BSE Auto was down by 554.56 points or 2.26% to 24012.56 and S&P BSE Capital Goods was down by 304.36 points or 1.71% to 17494.60 were the top losers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped by 8.70 or 0.08% to 11,010.20. On the National Stock Exchange (NSE), Nifty Next 50 lost 641.20 points or 2.27% to 27,593.65 and Nifty Mid Cap 100 decreased by 207.85 points or 1.14% to 18,055.15. On the other side, Nifty IT was up by 166.50 points or 1.15% to 14,701.40.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 21370.62 crore and gross sales of Rs 22781.08 crore, leading to a net outflow of Rs 1410.46 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 7182.11 crore against gross sales of Rs 7165.31 crore, resulting in a net inflow of Rs 16.80 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 5.92 crore and gross sales of Rs 31.39 crore, leading to a net outflow of Rs 25.47 crore.

Industry and Economy

Expressing confidence on India’s growth, Economic Affairs Secretary Subhash Chandra Garg has said that the Indian economy is expected to be the world’s third largest by 2030 with Gross Domestic Product (GDP) worth $10 trillion. He added ‘Good days are ahead and lot of good work is happening in the economy. The economy is on a stage of take-off where Indians can legitimately hold their heads high’.  Garg said that in the first 40 years of independence, the country hardly grew at 3.5%, and currently 7-8% is the norm. He also said ‘By 2030, we can legitimately expect to be a $10 trillion economy.

Outlook for the coming week

In the passing week, Indian equity benchmarks ended marginally lower after the opposition parties tabled a no-confidence motion against Prime Minister Narendra Modi’s government. The next week is likely to be a volatile one as investors are expected to adjust their positions due to expiry of F&O series on July 26, 2018.

In the coming week, traders will keep an eye on the GST Council meeting on July 21 which is set to approve wide-ranging changes in laws to further simplify the indirect tax system. The GST council in its meeting may cut tax rates on items such as sanitary napkins, handlooms, and handicrafts among others and may be brought to a lower tax slab.

Market-men will also keep their eyes on BRICS summit in South Africa which is scheduled held between July 25 and July 27 in order to discuss issues like trade in local currency, terrorism and immigration. Additionally, market-men would also be closely watching the momentum of Rupee.

The April-June quarter earnings season has started and traders in the up-coming week will also be eyeing result announcements of HDFC Bank, South Indian Bank, ACC, Delta Corp, Granules India, Hindustan Zinc, Larsen & Toubro Infotech, Vijaya Bank, V-Mart Retail, Asian Paints, Hexaware Technologies, Inox Leisure, Ambuja Cements, BHEL, Canara Bank, Crompton Greaves Consumer Electricals, Gruh Finance, Bharti Infratel, Jsw Steel, Jubilant FoodWorks, L&T, PVR, Tata Elxsi, Bharti Airtel, Biocon, Dr.Reddy's Laboratories, Eveready Industries India, ITC, J&K Bank, Maruti Suzuki India, NIIT, Petronet LNG, SBI Life Insurance Company, Tata Power along with many others.

On the global front, market-participants would watch key macro-economic data from US starting from Existing Home Sales on July 23, followed by Redbook, PMI Composite Flash on July 24, New Home Sales on July 25, Durable Goods Orders, International Trade in Goods, Jobless Claims, Retail Inventories [Advance], Wholesale Inventories [Advance], Fed Balance Sheet and Money Supply on July 26, and finally, GDP, Consumer Sentiment and Baker-Hughes Rig Count on July 27.

Top Gainers

  • Bajaj Finance up by 12.69% was the top gainer on Nifty for the week - Bajaj Finance gained traction on reporting better-than-expected result for the first quarter ended June 30, 2018, on higher interest income and stable asset quality. The company posted 81.36% jump in its consolidated net profit at Rs 835.89 crore for the quarter under review, as compared to Rs 460.91 crore for the same quarter in the previous year. Total consolidated income of the company increased by 39.08% at Rs 3,941.30 crore for Q1FY19 as compared Rs 2,833.87 crore for the corresponding quarter previous year.
  • Bajaj Finserv up by 6.43% was another top gainer on Nifty for the week - Bajaj Finserv gained after reporting 41.27% rise in its consolidated net profit at Rs 825.77 crore for the quarter ended June 30, 2018, as compared to Rs 584.53 crore for the same quarter of previous year. Total consolidated income of the company increased by 16.40% to Rs 8771.06 crore for Q1FY19, as compared to Rs 7535.56 crore for Q1FY18. The company’s standalone net profit rose 53.40% at Rs 6.09 crore for April-June quarter of FY19 as compared to Rs 3.97 crore for the corresponding quarter previous year.

Top Losers

  • Dr. Reddy’s Laboratories down by 12.95% was the top loser of the week on Nifty - Dr. Reddy’s Lab came under pressure after US court granted preliminary injuction blocking the Hyderabad-based firm from selling cut-price versions (buprenorphine and naloxone) of the British drugmaker Indivior’s best-selling opioid addiction treatment in the US. The court has prevented the company from re-launching its generic product until the patent litigation by Indivior is concluded or until it prevails on an appeal of this injunction. But, the company disagrees with the court’s decision, and will vigorously appeal it.
  • Hindalco Industries down by 11.19% was another top loser of the week on Nifty - Hindalco Industries witnessed selling pressure with reports that it is in advanced talks to acquire Aleris, an international manufacturer of aluminum products, for $2.5 billion. As per the report, the company and its Canadian arm, Novelis, is in process of raising debt for the said deal. The report said expensive valuations of over twelve times EBITDA and a huge debt pile on the company for the acquisition is a concern. Hindalco is also exploring the option of issuing American Depositary Receipt (ADR) to fund deal.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,076.20 on July 18 and lowest level of 10,925.60 on July 17. On the last trading day, the Nifty closed at 11,010.20 with weekly loss of 8.70 points or 0.08 percent. For the coming week, 10931.80 followed by 10,853.40 are likely to be good support levels for the Nifty, while the index may face resistance at 11,082.40 and further at 11,154.60 levels.

US Market

The US markets ended mostly in green terrain during the passing week as Federal Reserve Chairman Jerome Powell offered few surprises in his semiannual monetary policy testimony before the Senate Banking Committee. Powell said the U.S. economy has grown at a solid pace so far this year and noted the latest data suggests economic growth in the second quarter was 'considerably stronger' than in the first quarter. The Fed chief also described recent inflation data as ‘encouraging,’ with consumer price inflation a little above the central bank's 2 percent target. Powell said ‘Looking ahead, my colleagues on the FOMC and I expect that, with appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years’. However upside remain capped on account of profit booking following the uptrend trend seen over the past two weeks.

On the economic front, the Fed released a report showing industrial production increased in line with street estimates in June amid a rebound in auto production. The report said industrial production climbed by 0.6 percent in June after falling by a downwardly revised 0.5 percent in May. Pointing to continuing solid growth in the US economy, the Conference Board released a report showing a bigger than expected increase by its index of leading economic indicators in the month of June. The Conference Board said its leading economic index climbed by 0.5% in June after revised data showed no change in May. Street had expected the index to rise by 0.4% compared to the 0.2% uptick originally reported for the previous month.

Meanwhile, a report from the Labor Department showed that initial jobless claims unexpectedly dropped to their lowest level in almost five decades in the week ended July 14. The Labor Department said initial jobless claims fell to 207,000, a decrease of 8,000 from the previous week’s revised level of 215,000. Street had expected jobless claims to inch up to 220,000. With the unexpected decrease, jobless claims dropped to their lowest level since hitting 202,000 in December of 1969. However, the Commerce Department released a report showing a sharp pullback in new residential construction in the US in the month of June. The Commerce Department said housing starts plunged by 12.3% to an annual rate of 1.173 million in June after jumping by 4.8% to a revised rate of 1.337 million in May.

European Market

European markets ended the passing week on optimistic note, in response to well-received corporate earnings results. The markets made a cautious start, as investors kept an eye on Federal Reserve Chairman Jerome Powell's semi-annual congressional testimonies on Tuesday and Wednesday to see whether the Fed will raise rates again too soon. Domestic sentiments were muted with Germany's wholesale price inflation accelerating further in June to the highest level in nine months. The data from Destatis showed that wholesale prices climbed 3.4 percent year-on-year in June, faster than the 2.9 percent increase seen in May. Separately, Eurozone trade surplus decreased further in May, as imports grew faster than exports. As per figures from Eurostat, the seasonally adjusted trade surplus dropped to EUR 16.9 billion in May from EUR 18.0 billion in April.

However, the bourses soon gained ground to trade firm for the most part of the week, as Federal Reserve Chair Jerome Powell's upbeat economic view bolstered investor confidence in the world's largest economy. Adding some comfort, the International Monetary Fund kept its forecast for global economic growth unchanged at 3.9 percent this year despite proliferating trade conflicts. Further, in a positive surprise, Britain's employment level set a fresh record in the three months to May and unemployment was unchanged, yet pay growth eased to its lowest in six months. The figures from the Office for National Statistics showed that the number of employment was a record high 32.399 million in the March to May period, rising by 137,000 from the previous three months and the employment rate rose to a record 75.7 percent from 75.6 percent in the three months to April period.

On economic front, Eurozone’s construction output growth improved for a third straight month. According to the preliminary data from Eurostat, construction output rose 1.8 percent year-on-year after a 1.2 percent increase in April. Output climbed for a third straight month after stagnation in February. Besides, UK inflation remained stable for the second straight month in June. The Office for National Statistics reported that consumer prices climbed 2.4 percent year-over-year in June, the same rate of increase as in the previous two months. Meanwhile, the inflation was expected to accelerate to 2.6 percent. However, Euro area annual inflation accelerated in June, exceeding the European Central Bank's target of ‘below, but close to 2 percent’. The final data from Eurostat confirmed that the annual inflation rate rose to 2 percent from 1.9 percent in May, in line with the flash estimate release on June 29.

Asian market

The Asian equity indices made a mixed closing during the passing week, as caution prevailed amid concerns about the European Union imposing retaliatory tariffs on US goods, while US President Donald Trump’s criticism of Federal Reserve policy knocked the dollar. Seoul stocks fell after the country's government dramatically cut its outlook on the job market while slightly lowering its 2018 GDP forecast.

Chinese benchmark -- Shanghai Composite ended marginally lower, with data showing that China’s economy expanded at a slower pace in the second quarter as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low in a worrying sign for investment and exporters as a trade war with the United States intensified. China's GDP growth slowed to 6.7 percent in the second quarter, its slowest pace since 2016. That matched forecasts but was a tad lower than 6.8 percent in the first quarter of 2018. However, losses were limited as traders found some support with report that China’s central bank is looking to improve the liquidity of its bond markets by encouraging commercial lenders to buy corporate bonds with lower ratings.

However, Japanese Nikkei edged higher by around half a percent, as the yen weakened against the dollar. Traders also cheered data that showed Japan's trade balance returned to a surplus in June. Japan posted a merchandise trade surplus of 721.408 billion yen in June, up 66.5 percent on year. However, gains remained capped with data indicating that Japan's core consumer prices increased in June from a year earlier owing to rising costs for energy. The nationwide core CPI, which includes oil products but excludes volatile fresh food prices, rose 0.8 percent in June from a year earlier, matching a median market forecast. It followed a 0.7 per cent increase in May.
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