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Markets snap six-week gaining streak; Nifty breaches 11,600 level
Sep-07-2018

Snapping six-week gaining streak, Indian markets ended the passing week below their crucial 38,400 (Sensex) and 11,600 (Nifty) levels. Markets started the session on pessimistic note on report that the Controller General of Accounts (CGA) in its latest data has showed that the country’s fiscal deficit in the first four months of current FY19 came in at Rs 5,40,257 crore or 86.5% of the FY19 Budget target. The country’s fiscal deficit for FY19 is budgeted at 3.3% of the GDP against the actual of 3.5% in FY18. Sentiments also remain dampened with data showing that India’s core sector output grew at a slower pace of 6.6% in July 2018, from 7.6% in June 2018, on the back of sharp decline in crude oil and natural gas production. Traders shrugged off report that GDP expanded quicker than even the most optimistic forecast at 8.2% in Q1FY19. Key gauges extended losses for next two sessions after India’s services sector activity fell in the month of August from July’s 21-month peak, primarily due to the weakest growth in new work. The seasonally adjusted Nikkei Services Business Activity Index dropped to 51.5 in August from 54.2 in July, signaling the slowest growth in the current sequence. Besides, the Nikkei India Composite PMI Output Index which measures both manufacturing and services too fell to 51.9 in August from 54.1 in July. However, markets pared some of their early losses in last two days of trade, as traders took comfort with Finance Minister Arun Jaitley’s statement that there is no need to worry over the steep fall in the Indian rupee’s value against the US dollar as the inherent strength of the country’s economy will aid in arresting the downtrend. Some relief also came with Suresh Prabhu’s statement that India will become a $5 trillion economy in seven years from the present 2.6 trillion dollars, with phenomenal changes in social and economic sector reforms.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 255.25 points or 0.66% to 38,389.82 during the week ended September 07, 2018. The BSE Midcap index losses 376.47 points or 2.23% to 16,504.86 and Small-cap index slipped 296.25 points or 1.72% to 16,896.95. On the sectoral front, S&P BSE Fast Moving Consumer Goods was down by 585.61 points or 4.59% to 12186.08, S&P BSE Consumer Durables was down by 829.42 points or 3.82% to 20866.98, S&P BSE Realty was down by 65.34 points or 3.05% to 2076.09, S&P BSE PSU was down by 206.44 points or 2.61% to 7701.16 and S&P BSE Capital Goods was down by 455.24 points or 2.40% to 18541.52 were the top losers on the BSE sectoral front, while S&P BSE Healthcare was up by 365.95 points or 2.30% to 16311.12, S&P BSE Metal was up by 224.16 points or 1.62% to 14045.47, S&P BSE Information Technology was up by 232.20 points or 1.49% to 15780.72 and S&P BSE TECK was up by 66.92 points or 0.86% to 7884.17 were the top gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 91.40 or 0.78% to 11,589.10. On the National Stock Exchange (NSE), Bank Nifty slipped by 580.30 points or 2.07% to 27,481.45, Nifty Mid Cap 100 decreased 341.20 points or 1.71% to 19,579.25, Nifty Next 50 lost 809.00 points or 2.59% to 30,442.70. On the other side, Nifty IT was up by 293.35 points or 1.86% to 16,104.75.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 29814.21 crore and gross sales of Rs 30835.66 crore, leading to a net outflow of Rs 1021.45 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 2763.81 crore against gross sales of Rs 7391.46 crore, resulting in a net outflow of Rs 4627.65 crore. In hybrid segment, FIIs stood as net sellers, with gross sales of Rs 1.17 crore as against no purchases during the week, leading to a net outflow of Rs 1.17 crore.

Industry and Economy

The industry body, Confederation of Indian Industry (CII) has stated that India’s economic growth of 8.2% in the first quarter of 2018-19 is an outcome of key reforms initiated by the government like Goods and Services Tax (GST) and liberalisation of Foreign Direct Investment (FDI) norms. It also said that India can garner a Gross Domestic Product (GDP) growth of 7.3-7.7% for the ongoing financial year with the help of increase in private investment and enhanced government spending.

Outlook for the coming week

In the passing week, Indian markets displayed a weak performance with Nifty and Sensex settling with a cut of three fourth of a percent. Investor sentiment was largely battered by weak global cues, along with a weakness in Indian rupee as compared to dollar.

In the next week, on the economy front, investors will be eyeing the release of Index of Industrial Production (IIP) data for the month of July on September 12. India’s industrial output accelerated to 7% in the month of June 2018 owing to strong growth in manufacturing and capital goods sector. Also, investors will be eyeing current account deficit (CAD) data to be release on September 13.

Traders will also be looking forward to the release of Consumer price index (CPI) and Wholesale price index (WPI) data for the month of August which is slated to be released on September 12 and September 14 respectively. India’s retail inflation cooled down to 4.17% in the month of July 2018. WPI inflation eased to 5.09% in the month of July 2018.

India, Afghanistan and Iran will be meeting in Kabul from September 9 to 12 and market-participants will keep an eye on this trilateral meet. The trilateral meeting will be held as the second set of US imposed sanctions loom over Iran. Additionally, market-men would also continue to trace the momentum of rupee, FII investment and progress of monsoon.

On the global front, market-participants would watch key macro-economic data from US starting from Consumer Credit on September 10, followed by Wholesale Trade on September 11, PPI-FD and Beige Book on September 12, CPI, Jobless Claims, Treasury Budget, Fed Balance Sheet and Money Supply on September 13 and finally Retail Sales, Import and Export Prices, Industrial Production, Business Inventories, Consumer Sentiment and Baker-Hughes Rig Count on September 14.

Top Gainers

  • Dr. Reddy’s Lab up by 10.60% was the top gainer on Nifty for the week - Dr. Reddy’s Lab gained traction on receiving a final USFDA approval to manufacture Esomeprazole Magnesium + Naproxen delayed release tablets. This is a therapeutic equivalent to Horizon Medicines LLC’s Vimovo delayed release tablets. Vimovo is a painkiller drug which has two ingredients. Most pharma sector stocks traded higher amid rupee’s fresh fall to record low level against the US dollar. Depreciating rupee benefits exporters like pharma sector, which derive most of their revenues from the US.
  • Wipro up by 8.61% was another top gainer on Nifty for the week - Wipro gained on winning a 10-year engagement to provide a comprehensive suite of solutions and services to Lincolnshire, Illinois-based Alight Solutions LLC. This deal will result in revenues of $1.5 to $1.6 billion for Wipro over the tenure. Besides, most of the information & technology (IT) sector stocks continued their upward journey as Indian rupee weakened against the US dollar during the week. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion’s share of revenue from exports.

Top Losers

  • Yes Bank down by 10.60% was the top loser of the week on Nifty - Most of the banking sector stocks remained under pressure with a private report that banks may have to take a haircut of as much as 60% from the close to Rs 1.8 lakh crore of loans to the power sector after the Allahabad High Court denied power companies interim relief from Reserve Bank of India’s (RBI’s) tightened NPA regulations, further impacting banking profitability. Meanwhile, Yes Bank has received the RBI’s approval for the continuance of Rana Kapoor as MD and CEO of the bank till further notice from the central bank.
  • Hindustan Unilever (HUL) down by 7.56% was another top loser of the week on Nifty - The Directorate General of Anti-profiteering charged HUL with profiteering from a cut in goods and services tax by not passing on the benefits to consumers. The report put HUL’s undue profits at more than Rs 330 crore, more than double of the Rs 160 crore that the company had deposited with the Consumer Welfare Fund of the government, earlier. The DG’s report is before the National Anti-profiteering Authority, which will now hear the case and take the final call. HUL could face penalty if the authority confirms the report.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,751.80 on September 3 and lowest level of 11,393.85 on September 5. On the last trading day, the Nifty closed at 11,589.10 with weekly loss of 91.40 points or 0.78 percent. For the coming week, 11,404.70 followed by 11,220.30 are likely to be good support levels for the Nifty, while the index may face resistance at 11,762.65 and further at 11,936.20 levels.

US Market

The US markets ended mostly lower during the passing week on account of mounting concerns about contagion from a handful of struggling emerging economies on top of unresolved trade tension. Further, there were some cautiousness in the markets on  recent reports have suggested President Trump plans to move ahead with tariffs on $200 billion worth of Chinese imports as early as this week. Meanwhile, the U.S. and Canada continued high-stakes negotiations in the effort to revamp the North American Free Trade Agreement, which President Donald Trump said he is prepared to move forward with even without Canada’s participation. Moreover, a sharp sell-off in Technology stocks weighed on markets. Besides, Turmoil in Argentina and Turkey, as their currencies continue to sink on deteriorating confidence, is dragging on the global market as investors fear a spillover effect on other healthier emerging markets and beyond.

On the economic front, new orders for U.S. manufactured goods pulled back by more than expected in the month of July, according to a report released by the Commerce Department. The Commerce Department said factory orders fell by 0.8 percent in July after climbed by a downwardly revised 0.6 percent in June. Street had expected factory orders to drop by 0.6 percent compared to the 0.7 percent increase originally reported for the previous month. The bigger than expected decrease in factory orders reflected a sharp drop in orders for durable goods, which plunged by 1.7 percent in July after climbing by 0.9 percent in June. Meanwhile, Private sector employment in the U.S. rose by less than expected in the month of August, according to a report released by payroll processor ADP. ADP said private sector employment climbed by 163,000 jobs in August after jumping by a revised 217,000 jobs in July. Street had expected an increase of about 190,000 jobs compared to the spike of 219,000 jobs originally reported for the previous month.

A report released by the Institute for Supply Management (ISM) showed a much bigger than expected acceleration in the pace of growth in U.S. service sector activity in the month of August. The ISM said its non-manufacturing index jumped to 58.5 in August from 55.7 in July, with a reading above 50 indicating growth in the service sector. Street had expected the index to inch up to 56.8. There was a strong rebound for the non-manufacturing sector in August after growth 'cooled off' in July. Additionally, reflecting upward revisions to both output and hours worked, the Labor Department released a report showing the pace of growth in labor productivity in the second quarter was unrevised. The report said labor productivity increased by 2.9 percent in the second quarter, unrevised from the preliminary estimate but still reflecting a significant acceleration from the 0.3 percent uptick in the first quarter. Street had expected productivity growth to be upwardly revised to 3.0 percent. The unrevised reading on productivity, a measure of output per hour, came as the increases in output and hours worked were both upwardly revised to 5.0 percent and 2.0 percent, respectively.    

European Market

European markets ended the passing week sharply in red, impacted by concerns over global trade. The markets opened on a cautious note, as the current economic situation in euro area decreased in August after rising in the previous month. The results of a survey by the Bank of Italy and the Centre for Economic Policy Research showed that the euro-coin indicator dropped to 0.47 in August from 0.49 in July. The street got cautious after Euro zone producer price inflation accelerated on energy prices in July. The figures from Eurostat showed that producer prices advanced 4 percent year-on-year in July, following a 3.6 percent rise in June. Separately, France's consumer prices grew at a steady pace in August. As per provisional estimate from Insee, consumer price inflation came in at 2.3 percent, the same rate as registered in July. Inflation was forecast to ease to 2.2 percent. Final data is due on September 13.

The markets extended their losses further during the week, after Germany's factory orders dropped unexpectedly in July amid trade disputes with the United States. Data from Destatis showed that new orders in manufacturing fell 0.9 percent in July from June, confounding expectations for an increase of 1.8 percent. Domestic sentiments also got hit with Euro zone retail sales dropping for the first time in three months in July.  Eurostat reported that retail sales fell 0.2 percent month-on-month in July, in contrast to a 0.3 percent rise in June. This was the first fall since April, when sales were down 0.2 percent. Besides, Germany's retail sales growth eased more than expected in July. As per figures from Destatis, retail sales rose 0.8 percent year-on-year in July, slower than the 2.7 percent increase in June. Sales were expected to grow 1.3 percent.

On the economic front, the euro area private sector expanded slightly more than initially estimated in August. The final data from IHS Markit showed that the composite output index rose to 54.5 in August from July's 54.3. Eurozone manufacturing activity continued to strengthen in August, maintaining the run of expansion that stretched to 62 months. The survey data from IHS Markit showed that the Purchasing Managers' Index fell to 54.6 in August, in line with flash estimate, from July's 55.1. The indicator pointed to the slowest growth since November 2016. Moreover, UK services sector expanded at a faster pace in August on stronger new orders. As per survey data from IHS Markit, the IHS Markit/Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 54.3 from 53.5 in July. The indicator has reached its second-highest level since February.

Asian market

All the Asian equity indices snapped the week’s trade in the negative terrain, as another round of US tariffs on China loomed and investors looked ahead to the US Labor Department's August jobs report for clues to central bank rate hikes. Seoul stocks fell after latest figures from Bank of Korea showed South Korea's economic growth eased more than initially estimated in the three months ended June. GDP grew 0.6 percent sequentially in the second quarter, revised down from 0.7 percent rise seen in the flash report.

Japanese Nikkei tumbled by around two and half percent, as a stronger yen weighed on exporters' shares. Sentiment was also dented after US President Trump reportedly told a columnist for The Wall Street Journal that he was ‘still bothered by the terms of US trade with Japan’. Investors failed to get respite with private survey showing that activity in Japan’s services sector rose in August to the highest level in four months due to higher sales and new store openings, highlighting the strength of domestic demand. Besides, Japan's manufacturing growth improved slightly in August. The Nikkei flash manufacturing Purchasing Managers' Index rose to 52.5 from 52.3 in July. That was in line with the flash data published on August 23.

Chinese Shanghai too edged lower by around a percent, after a private survey showed that China's manufacturing activity growth slowed in August on weaker new orders. The Caixin Purchasing Managers' Index fell to 50.6 in August from 50.8 in July. The score signaled the weakest improvement since June 2017. Some concern also came with a private survey showing that growth in China's services sector weakened again in August as new business picked up only slightly from July's more than two-year low.
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