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EQUITY
Bears continue to hold grip on Dalal Street
Sep-14-2018

Indian equity benchmarks ended the holiday truncated week with a cut of over half a percent, as renewed concerns over an escalation of trade war between the US and China coupled with fall in the rupee that touched a new low weighted on the investors’ sentiment. Markets started the holiday shortened week on pessimistic note with SBI’ report that with the currency losing more than 11% to the dollar this year, India will have to shell out an extra Rs 68,500 crore when repaying short-term debt in the coming months. Sentiments also remain dampened with a report that total liabilities of the government increased to Rs 79.8 lakh crore at end-June 2018 from Rs 77.98 lakh crore at end-March 2018. Traders shrugged off the Reserve Bank of India’s (RBI) data showing that India’s current account deficit (CAD) as a percentage of GDP declined marginally to 2.4% in the April-June quarter of 2018-19 against 2.5% in the year-ago period. Markets extended losses as traders reacted negatively to the private report that a depreciating currency will impact the economy adversely, as India imports around 83% of its crude oil requirement. A surge in the oil import bill can widen fiscal and current account deficits. However, better-than-expected macroeconomic data helped markets to recoup some of their early losses. Traders took encouragement with report that India’s exports grew by 19.21% to $27.84 billion in August on account of healthy performance by sectors such as petroleum. Sentiments remained up-beat with retail inflation of India cooling to an 11-month low of 3.69% in August, while industrial production grew at 6.6% in July, slightly faster than the expected 6.5% expansion. Meanwhile, India’s WPI inflation eased for 2nd straight month to 4.53% in August from 5.09 percent in July and 3.24 percent during the corresponding month of the previous year.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 299.18 points or 0.78% to 38,090.64 during the week ended September 14, 2018. The BSE Midcap index losses 154.89 points or 0.94% to 16,349.97, while Smallcap index slipped 226.02 points or 1.34% to 16,670.93. On the sectoral front, S&P BSE Auto was down by 457.18 points or 1.85% to 24246.86, S&P BSE BANKEX was down by 388.31 points or 1.25% to 30621.55, S&P BSE Consumer Discretionary Goods & Services was down by 49.95 points or 1.20% to 4107.68, S&P BSE Finance was down by 67.80 points or 1.10% to 6077.77 and S&P BSE Fast Moving Consumer Goods was down by 118.01 points or 0.97% to 12068.07 were the top losers on the BSE sectoral front, while S&P BSE Power was up by 9.89 points or 0.47% to 2108.37, S&P BSE Metal was up by 45.06 points or 0.32% to 14090.53 and S&P BSE Capital Goods was up by 12.36 points or 0.07% to 18553.88 were the few gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 73.90 or 0.64% to 11,515.20. On the National Stock Exchange (NSE), Bank Nifty down by 317.60 points or 1.16% to 27,163.85, Nifty IT down by 32.25 points or 0.20% to 16,072.50, Nifty Mid Cap 100 was down by 190.10 points or 0.97% to 19,389.15 and Nifty Next 50 was down by 420.45 points or 1.38% to 30,022.25.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 22607.76 crore and gross sales of Rs 25904.36 crore, leading to a net outflow of Rs 3296.60 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 3812.14 crore against gross sales of Rs 4272.93 crore, resulting in a net outflow of Rs 460.79 crore. In hybrid segment, FIIs stood as net sellers , with gross purchases of Rs 1.39 crore and gross sales of Rs 2.04 crore, leading to a net outflow of Rs 0.65 crore.

Industry and Economy

Concerned by almost fourfold rise in the goods and services tax (GST) compensation to States for June-July, the Finance Ministry is making a strategy to shore up GST revenues and working with states to identify issues hindering their collections. There has been a spike in the bi-monthly GST compensation paid to the states by the Centre. The Centre paid Rs 149.3 billion to compensate states for revenue loss incurred in June and July, a nearly four-fold jump compared to Rs 38.99 billion paid for the months of April and May.

Outlook for the coming week

In the passing holiday truncated week, Indian equity benchmarks continued their southward journey for second straight week, with Nifty and Sensex losing around 70 and 300 points respectively, owing to rising petrol and diesel prices and rupee depreciation against the American currency.

In the next week, on the economy front, investors will be eyeing the Consumer price index inflation data for Agricultural Labourers/ Rural Labourers, which is slated to be released on September 20.

Prime Minister Narendra Modi is expected to meet Finance Minister Arun Jaitley, NITI Aayog Vice-Chairman Rajiv Kumar, PMEAC Chairman Bibek Debroy and Finance Secretary Hasmukh Adhia on September 15 and traders will also keep an eye on this meeting. This economic review meeting will be held to review the health of the economy in view of free-falling rupee and surging oil prices.

Market-participants would also keep a close watch on lingering trade-war concerns between the US and China, in the coming week. China will seek authorization at a special meeting of the WTO’s Dispute Settlement Body on September 21.

There will be some buzz from the aviation sector, as in the next week, Directorate General of Civil Aviation (DGCA) may release air passenger traffic data for the month of August. Additionally, market-men would also continue to trace the momentum of rupee and FII investment.

On the global front, market-participants would watch key macro-economic data from US starting from Empire State Mfg Survey on September 17, followed by Redbook, Housing Market Index and Treasury International Capital on September 18, Housing Starts on September 19, Jobless Claims, Philadelphia Fed Business Outlook Survey, Existing Home Sales, Fed Balance Sheet and Money Supply on September 20 and finally, PMI Composite FLASH and Baker-Hughes Rig Count on September 21.

Top Gainers

  • Lupin up by 7.30% was the top gainer on Nifty for the week - Lupin gained traction after the US health regulator concluded the inspection of company's Nagpur unit with zero observations. Nagpur facility is the company's latest site and manufactures oral solid dosage products. The site also houses company's state of the art injectable manufacturing facility. In a separate development, Lupin received approval for its Atovaquone Oral Suspension USP, 750 mg/5 mL from the USFDA to market a generic version of GlaxoSmithKline LLC’s Mepron Oral Suspension, 750 mg/5 mL.
  • NTPC up by 4.17% was another top gainer on Nifty for the week - NTPC will commence commercial operation of Unit 3 of 800 MW of Kudgi Super Thermal Project, Stage-I (3 X 800 MW) with effect from September 15, 2018. With this, the commercial capacity of Kudgi Super Thermal Power Project, NTPC and NTPC group would become 2400 MW, 45300 MW and 52191 MW respectively. Besides, NTPC has received an approval from the board for the investment of Rs 9,785 crore for the 2x660 MW Stage-III expansion of its Talcher thermal power plant in Odisha.

Top Losers

  • Yes Bank down by 6.02% was the top loser of the week on Nifty - Yes Bank came under pressure despite successfully closing a competitively priced $400 million syndicated loan facility, borrowed out of the Bank’s IFSC Banking Unit (IBU) in Gujarat International Finance Tec City (GIFT) and will be utilized to support the IBU’s growing business. Moreover, the Bank is eyeing to grow its retail loan book to between Rs 55,000-56,000 crore by 2019-20. The Bank sees a huge opportunity in retail and currently, the Bank’s retail asset book size is close to around Rs 32,000 crore.
  • Maruti Suzuki down by 3.03% was another top loser of the week on Nifty - Some of the Auto stocks came under selling pressure after domestic passenger vehicle sales declined for the second month in succession. Automobile industry body SIAM said domestic passenger vehicle sales declined by 2.46% in August due to high base effect and partial impact of floods in Kerala. As per the data, domestic passenger vehicle sales stood at 2,87,186 units last month as against 2,94,416 units in August 2017. Car sales slipped by 1.03% to 1,96,847 units in August.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,573.00 on September 10 and lowest level of 11,250.20 on September 12. On the last trading day, the Nifty closed at 11,515.20 with weekly loss of 73.90 points or 0.64 percent. For the coming week, 11,319.27 followed by 11,123.33 are likely to be good support levels for the Nifty, while the index may face resistance at 11,642.07 and further at 11,768.93 levels.

US Market

The US markets ended in green territory during the passing week following reports the US is proposing a new round of trade talks with China in the near future. US Treasury Secretary Steven Mnuchin has reportedly sent an invitation for talks to senior Chinese officials, proposing a meeting in the next few weeks. Support further also came in with report from the Labor Department showing consumer prices rose by less than expected in the month of August. The Labor Department said its consumer price index rose by 0.2 percent in August, matching the increase seen in July. Street had expected prices to climb by 0.3 percent. Excluding food and energy prices, core consumer prices inched up by 0.1 percent in August after rising by 0.2 percent for three straight months. Core prices had been expected to show another 0.2 percent increase. Meanwhile, the Labor Department said an array of indexes declined, including apparel, medical care, communication, recreation, and personal care. The report also said the annual rate of consumer price growth slowed to 2.7 percent in August from 2.9 percent in July. Core consumer prices were up by 2.2 percent year-over-year in August compared to the 2.4 percent increase in the previous month.

Besides, First-time claims for U.S. unemployment benefits unexpectedly edged slightly lower in the week ended September 8th, according to a report released by the Labor Department. The report said initial jobless claims dipped to 204,000, a decrease of 1,000 from the previous week's revised level of 205,000. Street had expected jobless claims to rise to 210,000 from the 203,000 originally reported for the previous week. With the unexpected decrease, jobless claims fell to their lowest level since hitting 202,000 in December of 1969. Meanwhile, the Labor Department released a report unexpectedly showing a modest drop in producer prices in the month of August.  The Labor Department said its producer price index for final demand edged down by 0.1 percent in August after coming in unchanged in July. Street had expected prices to rise by 0.2 percent.

Over 80 percent of the decrease in prices for final demand services can be traced to margins for machinery and equipment wholesaling, which tumbled by 1.7 percent. The indexes for health, beauty, and goods retailing, application software publishing, airline passenger services, and hospital outpatient care also fell, while prices for loan services jumped by 3.0 percent. Moreover, the Labor Department said the index for final demand goods was unchanged in August after increasing in each of the prior three months. Excluding food and energy prices, core producer prices still edged down by 0.1 percent in August following a 0.1 percent uptick in July. Core prices had been expected to increase by 0.2 percent. Producer prices in August were up by 2.8 percent compared to the same month a year ago, reflecting a slowdown from the 3.3 percent increase in July.

European Market

European markets ended the passing week on an optimistic note, reacting positively to the interest rate decisions of the Bank of England and the European Central Bank. The Bank of England and the European Central Bank have left their main interest rates unchanged. The key markets started on mixed note, as Eurozone investor confidence deteriorated unexpectedly in September. According to the survey data from think tank Sentix, the investor sentiment index fell to 12.0 in September from 14.7 in August. The score was forecast to rise to 15.0. Some worries also came after UK industrial production logged a marginal less-than-expected growth in July. The Office for National Statistics reported that industrial output climbed 0.1 percent in July from June due primarily to a rise in mining and quarrying of 3.3 percent. Economists had forecast industrial output to gain 0.2 percent in July.

However, the indices gained traction during the week, after Eurozone employment increased at a steady pace in the second quarter. The data from Eurostat showed that employment increased 0.4 percent sequentially in the second quarter, the same rate as seen in the first quarter. The annual growth also remained unchanged, at 1.5 percent. Adding some comfort, German economic sentiment improved more-than-expected to a four-month high in September, despite trade war fears. As per survey data from the Centre for European Economic Research or ZEW, the economic sentiment indicator climbed to -10.6 from -13.7 in August. Economists had expected a moderate improvement to -13.5. Separately, the UK economy expanded at the fastest pace in almost a year in July as warm weather boosted retail sales amid a recovery in construction. The data from the Office for National Statistics revealed that gross domestic product grew 0.6 percent in three months to July, the fastest since August 2017.

On the inflation front, Germany's consumer price inflation held steady, as initially estimated in August. The final data from Destatis revealed that consumer price inflation remained stable at 2 percent in August, in line with the estimate published on August 30. The rate reached the 2 percent mark for the fourth consecutive month. Besides, France's consumer prices also grew at a steady pace in August. As per final data from the statistical office Insee, consumer price inflation came in at 2.3 percent, the same rate as registered in July, and in line with the preliminary estimate published on August 31. Moreover, UK house price balance dropped in August largely due to the weakness in London. According to the Royal Institute of Chartered Surveyors, the national house price balance slid to 2 percent in August from 4 percent in July.

Asian market

All the Asian equity benchmarks, barring Shanghai composite ended in the green terrain during the passing week, after reports that the US and China might hold a fresh round of trade talks, a development that could help resolve the trade dispute between the world's two largest economies. Concerns around emerging market risks also eased somewhat after Turkey's central bank raised its key interest rate sharply in a dramatic bid to control rocketing inflation and prevent a currency crisis.

Japanese Nikkei remained the top gainer in the region, surging by over three and half percent, as the yen dipped on expectations of a new round of US-China trade talks in coming days and easing concerns about the state of emerging markets. Sentiments remained up-beat with data showing that Japan’s gross domestic product climbed an annual 3.0 percent in the second quarter of 2018. That beat forecasts for 2.6 percent and was up from the previous reading of 1.9 percent. On an annualized seasonally adjusted basis, GDP added 0.7 percent - unchanged and in line with expectations. Upbeat Japanese core machine orders for the month of July also boosted sentiment. Core machine orders in Japan were up a seasonally adjusted 11.0 percent on month in July on Thursday - coming in at 918.6 billion yen. That beat expectations for a gain of 5.5 percent following the 8.8 percent slide in June.

Bucking the trend, Shanghai Composite edged lower by over half a percent, after the release of mixed economic readings. Chinese industrial output and retail sales figures for August topped forecasts, but real estate investment cooled and growth in fixed asset investment dipped to a historic low, raising risks to China's economic outlook as the trade conflict with the US escalates.
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