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Bears take the bulls by horns on Dalal Street; Sensex breaches 36,900 mark
Sep-21-2018

The dark clouds have made a comeback on Dalal Street, as markets continued their bearish run for third straight week and frontline gauges settled below their crucial 36,900 (Sensex) and 11,150 (Nifty) levels. Markets started the holiday truncated week on pessimistic note and never looked in recovery mood throughout the week, as traders remained concerned with report that foreign exchange reserves fell below $400 billion, for the first time since November 11, 2017, in the first week of September. As on September 7, foreign exchange reserves stood at $399.28 billion, a result of the Reserve Bank of India’s intervention at a time when portfolio flows were witnessing some reversals. Traders even overlooked data report showing that India’s merchandise exports rose at the fastest pace in three months in the month of August 2018, mainly on the back of healthy growth in petroleum products, engineering, pharma, and gems and jewellery shipments. Key gauges extended sell-off with International Monetary Fund’s (IMF) estimates that the real effective depreciation of Indian rupees is between 6-7% compared to December 2017. It said broadly since the beginning of the year, Indian rupee has lost about 11% of its value in nominal terms vis-a-vis the US dollar. Sentiments also got hit with credit rating agency, India Ratings and Research’s latest report that banks' credit costs are likely to remain elevated at 2%-3% during FY19-FY20, on the back of ageing of non-performing assets (NPAs), accelerated provisioning and slippages especially from non-corporate accounts. Selling in final session ensured markets to settle with a cut of over three percentage points, as the EEPC India said that at a time when the country is grappling with the widening of the current account deficit (CAD), any move to raise import duty on steel or steel products would severely hit India's crucial engineering exports and rather lead to further expansion of the CAD.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1249.04 points or 3.28% to 36,841.60 during the week ended September 21, 2018. The BSE Midcap index losses 754.34 points or 4.61% to 15,595.63 and Smallcap index slipped 907.83 points or 5.45% to 15,763.10. On the sectoral front, S&P BSE BANKEX was down by 1919.52 points or 6.27% to 28702.03, S&P BSE Finance was down by 378.67 points or 6.23% to 5699.10, S&P BSE Realty was down by 127.03 points or 6.14% to 1940.23, S&P BSE Power was down by 89.26 points or 4.23% to 2019.11 and S&P BSE Auto was down by 972.02 points or 4.01% to 23274.84 were the top losers on the BSE sectoral front, while S&P BSE Oil & Gas was up by 174.22 points or 1.17% to 15047.85 were the only gainer on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 372.10 or 3.23% to 11,143.10. On the National Stock Exchange (NSE), Bank Nifty was down by 1566.95 points or 5.77% to 25,596.90, Nifty IT fell 239.00 points or 1.49% to 15,833.50, Nifty Mid Cap 100 decreased 1041.65 points or 5.37% to 18,347.50 and Nifty Next 50 was down by 1390.25 points or 4.63% to 28,632.00.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 20413.61 crore and gross sales of Rs 22927.69 crore, leading to a net outflow of Rs 2514.08 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 1747.63 crore against gross sales of Rs 5192.49 crore, resulting in a net outflow of Rs 3444.86 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 11.49 crore and gross sales of Rs 9.88 crore, leading to a net inflow of Rs 1.61 crore.

Industry and Economy

Amid fall of the Indian currency in the last few months, the International Monetary Fund (IMF) has estimated that the real effective depreciation of Indian rupees is between 6% and 7% compared to December 2017. It said broadly since the beginning of the year, Indian rupee has lost about 11% of its value in nominal terms vis-a-vis the US dollar. Though, he added that the currencies of many of India’s trading partners, including those in the emerging markets, too have depreciated against the dollar.

Outlook for the coming week

In the previous holiday truncated week, India equity markets displayed a catastrophic performance with Sensex and Nifty posting massive losses of over 3 percent.  The next week, is expected to be a volatile one as traders will adjust their positions on account of monthly derivatives expiry, which is scheduled to take place on September 27, Thursday. Markets will be watching out for Core sector data, which will be released on September 28.

Investors will keep an eye on the meeting of the finance ministry and top management of public sector banks on September 25. This brain storming meeting will be held in order to discuss the future of the banks.

Market-men will also keep an eye on the meeting of external affairs minister Sushma Swaraj and her Pakistan counterpart Shah Mehmood Qureshi in New York on September 26 on the sidelines of the UN General Assembly.

Additionally, Suresh Prabhu is on a 3-day visit to Bangladesh from September 23 to discuss trade and other bilateral issues between India and Bangladesh and the traders would also look forward to this meeting.

There will be some buzz from the oil & gas sector, as the government is likely to sign contracts on September 24 for 55 oil and gas exploration areas awarded under India's maiden open acreage auction OALP-1.

On the global front, market-participants would watch key macro-economic data from US starting from Redbook and Consumer Confidence on September 25, followed by New Home Sales, FOMC Meeting Announcement, FOMC Forecasts and Fed Chair Press Conference on September 26, Durable Goods Orders, GDP, International Trade in Goods, Jobless Claims, Pending Home Sales Index, Fed Balance Sheet and Money Supply on September 27, and finally Personal Income and Outlays, Chicago PMI, Consumer Sentiment and Baker-Hughes Rig Count on September 28.

Top Gainers

  • Bharat Petroleum Corporation (BPCL) up by 12.67% was the top gainer on Nifty for the week - Oil marketing companies (OMCs) gained traction amid a fresh fall in global crude oil price after US President Donald Trump urged OPEC to increase production at its meeting in Algeria. Besides, unexpected rise in USA inventories also weighed on prices. In a separate development, BPCL sought the government’s nod for threefold expansion of its Numaligarh refinery in northeast from 3 million tonnes per annum (mtpa) to 9 mtpa at a cost of Rs 22,000 crore.
  • Hindustan Petroleum Corporation (HPCL) up by 7.32% was another top gainer on Nifty for the week - HPCL gained on foraying into the packaged drinking water sector with the launch of Reminero, a product in partnership with IICT to seek their expertise in Membrane Technology, along with infrastructure support, for manufacturing Re-Mineralised Nano Filtered packaged drinking water adhering to the prevailing standards. Besides, HPCL embarked on a major expansion-cum-consolidation drive that involves a Rs 75,000 crore capital expenditure over the next five years.

Top Losers

  • Yes Bank down by 27.94% was the top loser of the week on Nifty - Yes Bank remained under pressure after the Reserve Bank of India (RBI) denied a three-year extension to its chief executive officer Rana Kapoor and asked him to step down after January 31, 2019. RBI has directed the private sector lender to search for a successor in the interim. As per a private report, Kapoor’s exit could slow down growth and delay fundraising plans of the bank. Meanwhile, Yes Bank raised funds worth Rs 3,042 crore on private placement basis.
  • Bajaj Finance down by 8.27% was another top loser of the week on Nifty - Bajaj Finance came under pressure despite Bajaj Finserv, through lending arm Bajaj Finance, announcing collaboration with Wochit- a US-Israel based video automation company - to meet its ambitious goal of making video as the primary format of stimulation across its stakeholder sets. In the first-of-its-kind initiative, Bajaj Finserv will take its first step towards leveraging the remarkable growth in online video consumption and lead video adoption amongst BFSI players in India.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,464.95 on September 17 and lowest level of 10,866.45 on September 21. On the last trading day, the Nifty closed at 11,143.10 with weekly loss of 372.10 points or 3.23 percent. For the coming week, 10,851.38 followed by 10,559.67 are likely to be good support levels for the Nifty, while the index may face resistance at 11,449.88 and further at 11,756.67 levels.

US Market

The US markets ended the passing week on optimistic note with all the major indices settling with a significant gains, as traders shrugged off concerns about the escalating trade war between the U.S. and China. Traders seemed to be expressing relief that the rates of tariffs the U.S. will impose on Chinese goods and retaliatory tariffs China will impose on U.S. goods are not as high as feared. Markets started the week on pessimistic note on lingering trade concerns, with stocks seeing further downside after President Donald Trump said an announcement on trade with China would be made after the close of trading. Recent reports have said Trump intends to proceed with plans to impose tariffs on $200 billion worth of Chinese goods. Sentiments also remained dampened on report that the New York Federal Reserve released a report showing a bigger than expected slowdown in the pace of growth in regional manufacturing activity in the month of September.

Markets gained traction afterwards and never looked back to end the week in green terrain, as sentiments turned optimistic after investors increased bets on a favorable outcome in the trade dispute between the United States and China. Traders also took some encouragement with upbeat economic data, with a report from the Labor Department showing initial jobless claims unexpectedly dipped to their lowest level in nearly fifty years in the week ended September 15th. The Labor Department said jobless claims edged down to 201,000, a decrease of 3,000 from the previous week’s unrevised level of 204,000. The street had expected jobless claims to rise to 210,000. With the unexpected decrease, jobless claims fell to their lowest level since hitting 197,000 in November of 1969. A separate report from the Conference Board showed a continued increase by its index of leading economic indicators in the month of August. The Conference Board said its leading economic index rose by 0.4 percent in August after climbing by an upwardly revised 0.7 percent in July.

Meanwhile, the US current-account deficit, a core component in a country’s balance of payments, shrank 17% in the second quarter and touched the lowest level in three years, though the dropoff is unlikely to last. The government said the deficit dropped to $101.5 billion from a revised $121.7 billion in the first quarter. The current account includes not just trade but also investments made abroad as well as personal cash transfers such as foreign workers sending money home. The current account deficit was 2% of GDP in the second quarter. That’s down from 2.4% in the first quarter and well below a peak of 6.3% in 2005.

European Market

European markets ended the passing week on a cheerful note, as investors veered around to the view that the US-China trade row would be less harmful to global growth than first feared. The markets made a weak start, after Italy's industrial orders dropped for a second straight month in July and at the fastest pace in six months. The data from the statistical office ISTAT showed that industrial orders dropped a seasonally adjusted 2.3 percent from the previous month, when they fell 1.5 percent. In May, orders grew 3.3 percent. Domestic sentiments also got cautious, as UK inflation rose unexpectedly in August, squeezing consumers' disposable income even as wages showed signs of recovery. According to the Office for National Statistics, consumer price inflation increased to 2.7 percent in August from 2.5 percent in July.

However, further during the week, the indices managed to add gains, encouraged by the better than expected retail sales report from the UK. UK retail sales grew unexpectedly in August, thanks to warm weather and real wage growth. The data from the Office for National Statistics revealed that retail sales volume, including auto fuel, gained 0.3 percent month-on-month in August, slower than the 0.9 percent increase seen in July, but in contrast to the expected fall of 0.2 percent. This was the second consecutive rise in sales volume. The market participants paid no heed towards a report stating that Euro area consumer confidence weakened sharply in September to its lowest level in 15 months. The initial estimates from the European Commission showed that the flash consumer confidence index dropped to -2.9 from -1.9 in August. Economists had forecast a score of -2.

On the economic front, Eurozone inflation slowed as estimated in August. The final data from Eurostat revealed that harmonized inflation came in at 2 percent in August versus 2.1 percent in July, which was the highest since December 2012. The rate came in line with the estimate published on August 31. Besides, UK house prices recovered in September. As per property website Rightmove, house prices gained 0.7 percent month-on-month in September after a 2.3 percent decrease. Separately, UK households' perceptions of financial wellbeing remained close to survey-high in September. The data from IHS Markit showed that the household finance index held steady at 45.9 in September, which was the second highest score since the survey began in February 2009.

Asian market

Asian markets ended mostly in green terrain during the passing week as investors gravitated to the view that the US-China trade row would be less harmful to global growth than first feared. Markets started the session on pessimistic note after talks between the US and Canadian chief negotiators ended inconclusively last week and the Wall Street Journal reported that Beijing is considering declining the offer of talks with the US aimed at diffusing trade tensions, as it isn't prepared to negotiate with a ‘gun pointed to its head’. Further, reports that the Trump administration has instructed aides to proceed with plans to impose tariffs on Chinese imports as early as this week, which too dented Asian market sentiments. However, sentiments turned optimistic afterwards and regional indices managed to end the week in positive territory. Chinese shares ended higher as investors continued to bet that Beijing would increase economic stimulus to boost the economy in the face of the trade war.

Japanese shares ended with a gain of over two and a half percent, as the yen slipped against its key counterparts and the Bank of Japan kept its ultra-loose monetary policy unchanged, as widely expected. Positive trade balance data also boosted sentiments. Japan posted a 444.594 billion yen trade deficit in August. That beat forecasts for a shortfall of 483.2 billion yen following the 231.9 billion yen deficit in July. Exports climbed 6.6 percent on year to 6.691 trillion yen - exceeding expectations for 5.2 percent and up from 3.9 percent in the previous month. Imports jumped an annual 15.4 percent to 7.136 trillion yen versus forecasts for 14.5 percent and up from 14.6 percent a month earlier. Meanwhile, the manufacturing sector in Japan continued to expand in September, and at an accelerated pace, the latest survey from Nikkei revealed with a manufacturing PMI score of 52.9, up from 52.5 in August. Another report showed that overall nationwide consumer prices in Japan rose an annual 1.3 percent in August, exceeding expectations for 1.1 percent and up from 0.9 percent in July.
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