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EQUITY
Bulls continue to roar on Dalal Street for sixth straight week
Aug-31-2018

Indian equity benchmarks extended their northward journey for sixth straight week, with frontline gauges settling above their crucial 38,600 (Sensex) and 10,650 (Nifty) levels. Markets started the week on an optimistic note with report that former Niti Aayog vice-chairman Arvind Panagariya opined that rupee depreciation was long overdue, saying appreciated currency had hurt the country’s exports. He further said India’s macroeconomic management is sound and there was no reason to worry. Traders also took some encouragement with Finance Minister Arun Jaitley’s statement that a series of reforms taken by the government transformed the weak economy. Markets extended rally on next day with National Council of Applied Economic Research (NCAER) in its latest report retaining India’s growth forecast for the current fiscal at 7.4%, citing comfortable agricultural sector outlook and a marked improvement in the external sector. Adding to the optimism Commerce Minister Suresh Prabhu said that the government is working on a comprehensive strategy in a bid to double India’s export by the year 2025. However, traders turned pessimistic and markets pare some of their gains on remaining sessions for the week, as traders remained cautious with a private report that the Indian economy is in for a rough ride, with rising oil prices set to continue weighing on its already-weakened currency, widen its deficit, and affect its growth outlook. Sentiments also remain dampened with reports that foreign investors have pulled out $280 million from the Indian markets so far this year. Adding to the pessimism, the Reserve Bank of India (RBI) reiterated concerns over rising inflationary pressures this fiscal year due to global and domestic pressures and called for continuous vigil to keep them at bay.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex surged 393.27 points or 1.03% to 38,645.07 during the week ended August 31, 2018. The BSE Midcap index gained 328.59 points or 1.99% to 16,881.33 and Small-cap index surged 328.77 points or 1.95% to 17,193.20. On the sectoral front, S&P BSE Power was up by 99.05 points or 4.85% to 2140.72, S&P BSE Metal was up by 616.97 points or 4.67% to 13821.31, S&P BSE Information Technology was up by 495.21 points or 3.29% to 15548.52, S&P BSE Healthcare was up by 464.31 points or 3.00% to 15945.17 and S&P BSE TECK was up by 221.72 points or 2.92% to 7817.25 were the top gainers on the BSE sectoral front, while there were no losers on the BSE sectoral front.

NSE movement for the week

The Nifty surged 123.40 or 1.07% to 11,680.50. On the National Stock Exchange (NSE), Bank Nifty was up by 227.05 points or 0.82% to 28,061.75, Nifty IT was up by 551.35 points or 3.61% to 15,811.40, Nifty Mid Cap 100 increased 378.40 points or 1.94% to 19,920.45 and Nifty Next 50 gained 704.55 points or 2.31% to 31,251.70.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 23528.39 crore and gross sales of Rs 23800.76 crore, leading to a net outflow of Rs 272.37 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 3904.21 crore against gross sales of Rs 5152.29 crore, resulting in a net outflow of Rs 1248.08 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 1.89 crore and gross sales of Rs 5.15 crore, leading to a net outflow of Rs 3.26 crore.

Industry and Economy

In order to create a tax compliant system within the gold sector, the government think tank Niti Aayog in its latest report has recommended the government to reduce the basic customs duty on gold from the existing level of 10% to as low as possible. It also suggested that slash the Goods and Services Tax (GST) rate on the precious metal from the current 3%. It recommended the government to review and revamp the gold monetisation scheme and the sovereign gold bond scheme and introduce new gold savings account in banks besides setting up of a gold board and bullion exchanges across the country to have greater financialisation of the yellow metal.

Outlook for the coming week

In the passing week, Indian markets displayed a good performance with Nifty and Sensex posting gains of more than 1 percent as some support came with Finance Minister Arun Jaitley stating that India may surpass UK to become the world’s fifth largest economy in 2019 on account of growing consumption and strong economic activity.

In the next week, on the economy front, investors will be eyeing the Nikkei Manufacturing PMI for the month of August, which is slated to be released on September 3. A composite single-figure indicator of manufacturing performance -fell to 52.3 in July from 53.1 in June 2018.

Traders will also be looking forward to the Nikkei Services PMI data for the month of August which is slated to be announced on September 5. The seasonally adjusted Nikkei Services Business Activity Index climbed to 54.2 in the month of July from 52.6 in June.

Market-men will also be watching the ‘2+2 dialogue’ which will be held on September 6 between India and the US. Pompeo and Mattis will hold talks with Indian Foreign Minister Sushma Swaraj and Defence Minister Nirmala Sitharaman with a view to strengthen strategic and security ties between the two countries.

Additionally, traders will also keep their eyes on the launch of India Post Payments Bank (IPPB) and the second phase of the FAME India scheme by Prime Minister Narendra Modi on September 1 and September 7, respectively.

On the global front, market-participants would watch key macro-economic data from US starting from Markit manufacturing PMI final, ISM manufacturing index, Construction spending and Motor vehicle sales on September 4, followed by Trade deficit on September 5, ADP employment, Weekly jobless claims, Productivity, Markit services PMI final and Factory orders on September 6 and finally, Nonfarm payrolls and Unemployment rate on September 7.

Top Gainers

  • Hindalco Industries up by 7.65% was the top gainer on Nifty for the week - Hindalco Industries said that alumina prices likely to stay strong in the near-term. The company’s managing director Satish Pai said that aluminium prices should move up in second half of the year. On growth front, Pai said Hindalco Industries has plans in place to expand capacity at Utkal plant in Odisha. Besides, a report stated that the primary aluminium producers in the country continued their growth momentum despite a turmoil in global markets which has engendered deficit in supplies.
  • Power Grid Corporation of India up by 5.94% was another top gainer on Nifty for the week - Power Grid gained after it sought shareholders’ approval for raising Rs 20,000 crore through bonds or debentures on private placement basis in 2019-20. The proposal is to raise funds from domestic market through issue of secured/unsecured, non-convertible, noncumulative/cumulative, redeemable, taxable/tax-free debentures/bonds under private placement during 2019-20 in up to twenty tranches/offers. The proposed borrowing will be within overall borrowing limits of Rs 1,80,000 crore.

Top Losers

  • Yes Bank down by 11.61% was the top loser of the week on Nifty - Most of the banking sector stocks remained under pressure with RBI’s report that banks will continue to face deterioration in their NPAs or bad loans due to the current economic conditions in the current fiscal year. The gross NPAs plus restructured standard advances in the banking system remained elevated at 12.1% of gross advances at end-March 2018. Credit growth was largely driven by private sector banks, which were resilient in the face of these tectonic shifts, with their credit portfolio growing at 18.7% during the year.
  • Bajaj Finserv down by 4.85% was another top loser of the week on Nifty - Bajaj Finserv came under pressure with report that non-banking financial companies (NBFCs) appear to be under stress because of the new accounting rules. The Indian Accounting Standard (Ind-AS) norms now require NBFCs to provide for losses on bad loans by anticipating future losses (expected credit loss, ECL) based on default probability, as opposed to waiting for loans to go bad as was the case under the earlier system. Besides, NBFCs have started to follow it from the June quarter.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,760.20 on August 28 and lowest level of 11,595.60 on August 27. On the last trading day, the Nifty closed at 11,680.50 with weekly gain of 123.40 points or 1.07 percent. For the coming week, 11,597.33 followed by 11,514.17 are likely to be good support levels for the Nifty, while the index may face resistance at 11,761.93 and further at 11,843.37 levels.

US Market

The US markets ended higher during the passing week as U.S. President Donald Trump announced a new trade agreement with Mexico. Trump said that the United States and Mexico reached an accord to revise key portions of the North American Free Trade Agreement (Nafta) and would finalize it within days. Trump promoted the preliminary agreement with Mexico as a deal that could replace Nafta, the current agreement between the two nations and Canada, and threatened to hit Canada with auto tariffs if it did not negotiate fairly. He said that the deal would be called The United States-Mexico Trade Agreement. He further added that the deal will help farmers and manufacturers. The new deal will last 16 years and will be reviewed every six years. The core of the trade pact - which allows American companies to operate in Mexico and Canada without tariffs - remains intact.

Further, sentiments got boost after a measure of consumer confidence hit a nearly 18-year high, underscoring a continued expansion of the US economy. A report released by the Conference Board showed an unexpected improvement in US consumer confidence in the month of August. The Conference Board said its consumer confidence index surged up to 133.4 in August from an upwardly revised 127.9 in July. Street had expected the index to dip to 126.8 from the 127.4 originally reported for the previous month. With the unexpected increase, the consumer confidence index reached its highest level since hitting 135.8 in October of 2000. These historically high confidence levels should continue to support healthy consumer spending in the near-term.

Besides, the Commerce Department’s report showed that economic activity in the US grew by slightly more than initially estimated in the second quarter. The report said real gross domestic product climbed by 4.2 percent in the second quarter compared to the previously reported 4.1% increase. The pace of growth had been expected to be downwardly revised to 4.0 percent. With the unexpected upward revision, the GDP growth in the second quarter reflects a significant acceleration from the 2.2 percent advance in the first quarter. The upward revised increase in GDP in the second quarter also represents the fastest growth since a 4.9 percent spike in the third quarter of 2014. Meanwhile, the Labor Department released a report showing a modest uptick in initial jobless claims in the week ended August 25. The report said initial jobless claims crept up to 213,000, an increase of 3,000 from the previous week’s unrevised level of 210,000. Street had expected jobless claims to edge up to 214,000.    

European Market

European markets ended the passing week on mixed note, as Eurozone economic confidence deteriorated more-than-expected in August. The survey results from European Commission showed that the economic sentiment index dropped to 111.6 in August from 112.1 in July. The key indices made a cautious start, after France's government reduced its growth projection for next year and the 2019 budget will be based on the new forecast. The government forecast the economy to expand 1.7 percent in 2019 instead of 1.9 percent projected earlier. Domestic sentiments also got hit, as Germany's consumer confidence is set to drop slightly in September, but the mood is likely to remain positive due to a stable job market. As per survey data from the market research group GfK, the forward-looking consumer sentiment index dropped to 10.5 in September from 10.6 in August.

Trade remained lackluster during the week, as Germany's import prices grew at the fastest pace in more than a year in July. The data from Destatis showed that import price inflation accelerated to 5 percent in July from 4.8 percent in June. This was the fastest rate since April 2017, when prices advanced 6.1 percent but slower than the expected 5.2 percent. Besides, UK shop prices increased for the first time in more than five years in August. As per the British Retail Consortium, shop prices edged up 0.1 percent in August, following a 0.3 percent drop in July. This broke a deflation cycle of 63 months. The market participants overlooked a report that Germany's business confidence strengthened to a six-month high in August, weathering geopolitical risks and trade tensions. The business sentiment indicator rose more-than-expected to 103.8 in August from 101.7 in July.

On the economic front, France's economy expanded at a steady pace in the second quarter as previously estimated. The second estimate from the statistical office Insee showed that Gross domestic product advanced 0.2 percent sequentially, the same rate as seen in the first quarter and in line with the first estimate released on July 27. Separately, France's consumer confidence held steady for the second straight month in August, in line with expectations. As per survey data from the statistical office Insee, the consumer sentiment came in at 97 in August, the same reading as in the previous two months. Moreover, Germany's unemployment decreased in August. The the Federal Labor Agency reportedly said that the number of unemployed fell by 8,000 from the previous month, in line with expectations.

Asian market

All the Asian equity benchmarks, barring Shanghai composite ended in the green terrain during the passing week, despite media reports suggested that US President Donald Trump is eager to push ahead with higher tariffs on Chinese exports as soon as next week. Seoul ended higher after the government proposed to spend a record 471 trillion won next year to add jobs and to boost the dynamism of the economy.

Japanese Nikkei surged by over a percent, as the yen's fall against the dollar lifted export-oriented shares. Sentiments remained positive with report showing that retail sales in Japan rose a seasonally adjusted 0.1 percent sequentially in July. On an annual basis, retail sales climbed 1.5 percent - exceeding expectations for 1.2 percent and down from 1.8 percent in the previous month. However, gains remained capped with report that Japan’s factory output fell for a third straight month in July due to slowing exports of cars and steel and flooding that disrupted production, compounded by global trade tensions that cloud the export-reliant economy’s outlook. Besides, Japan’s jobless rate rose slightly in July while the availability of jobs improved.

Bucking the trend, Shanghai Composite edged marginally lower, after country's state planner warned of increased economic risks in the second half of the year and said that greater efforts are needed to hit key development goals. However, further losses got restricted with survey from the National Bureau of Statistics indicating that the manufacturing sector in China continued to expand in August, and at a slightly faster rate, with a PMI score of 51.3. That beat expectations for a score of 51.0 and was up from 51.2 in July. The non-manufacturing PMI came in at 54.2 also exceeding expectations for 53.7 and up from 54.0 in the previous month.
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