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Bears take the bulls by horns on Dalal Street; Sensex breaches 34,400 mark
Oct-05-2018

Passing week turned out to be a horrendous for Indian equity benchmarks with frontline gauges ending with a cut of over five percent, settling below their crucial 34,400 (Sensex) and 10,350 (Nifty) levels. Markets started the holiday truncated week on an optimistic note supported by positive macroeconomic data. Business activity in Indian manufacturing sector picked up in the month of September 2018, amid firmer gains in new orders, output and employment. As per the survey report, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance - rose to 52.2 in September from 51.7 in August. Besides, Goods and Services Tax (GST) mop-up rose to Rs 94,442 crore in September, from Rs 93,690 crore in the previous month. However, markets turned pessimistic and never looked in recovery mood afterwards as market participants remained concerned with the government data showing that the growth of eight core sectors slowed to 4.2% in August, due to fall in output of crude oil, petroleum product and fertiliser. Markets extended southward journey after India’s services sector activity fell for the second straight month in September 2018. As per the survey report, the seasonally adjusted Nikkei Services Business Activity Index dropped to 50.9 in September from 51.5 in August, signaling the slowest growth in the current four-month sequence of rising activity. Traders remained cautious with Exporters’ body Federation of Indian Export Organisations’ (FIEO) statement that the growth of country’s exports is likely to slow in the coming months owing to various domestic and global factors. Key gauges witnessed bloodbath in last day of the week after the Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5%.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1850.15 points or 5.11% to 34,376.99 during the week ended October 05, 2018. The BSE Midcap index losses 759.39 points or 5.14% to 14,003.81 and Smallcap index slipped 590.42 points or 4.09% to 13,840.26. On the sectoral front, S&P BSE Oil & Gas was down by 2711.82 points or 18.25% to 12143.59, S&P BSE PSU was down by 533.14 points or 7.43% to 6638.24, S&P BSE Auto was down by 1501.54 points or 6.99% to 19974.98, S&P BSE Consumer Discretionary Goods & Services was down by 221.95 points or 6.00% to 3477.23 and S&P BSE Fast Moving Consumer Goods was down by 632.02 points or 5.49% to 10870.73 were the top losers on the BSE sectoral front, while there were no gainers.

NSE movement for the week

The Nifty slipped 614.00 or 5.62% to 10,316.45. On the National Stock Exchange (NSE), Bank Nifty down by 676.40 points or 2.69% to 24,443.45, Nifty IT down by 246.40 points or 1.56% to 15,591.65, Nifty Mid Cap 100 down by 854.60 points or 4.98% to 16,299.75 and Nifty Next 50 was down by 1383.25 points or 5.07% to 25,903.25.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 26690.97 crore and gross sales of Rs 33785.17 crore, leading to a net outflow of Rs 7094.20 crore. They also stood as net sellers in the debt segment with gross purchases of Rs 2795.47 crore against gross sales of Rs 5056.25 crore, resulting in a net outflow of Rs 2260.78 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 3.44 crore and gross sales of Rs 6.41 crore, leading to a net outflow of Rs 2.97 crore.

Industry and Economy

The Confederation of Indian Industry (CII) has said that the fall in the value of rupee does not benefit exporters, instead, a stable range-bound currency is needed for long term sustainable growth of India's international trade. It also said that in the present globalised environment, majority of costs like raw material, shipping charges, warehousing and other related services are denominated in foreign currency or at import parity price.

Outlook for the coming week

In the passing week, Indian markets extended southward journey for fifth straight week, with Sensex and Nifty declining over 5% each. The sentiments remained dampened as Indian rupee slipped to another low amid boiling crude prices and weak global cues. Besides, the central bank in a surprise decision kept key interest rates unchanged, while the government’s announcement to cut gasoline and diesel prices hurt oil marketers.

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 August on October 12. India’s industrial production measured grew at 6.6% in the month of July 2018, with good performance by the manufacturing sector and higher offtake of capital goods and consumer durables.

Traders will also be looking forward to the release of Consumer price index (CPI) data for the month of September which is slated to be released on October 12. India’s retail inflation softened to a 10-month low of 3.69% in the month of August 2018, as compared to 4.17% in July, mainly on the back of easing prices of fruits, vegetables and other food items.

Besides, the Finance Ministry will kick off Budgetary exercise for 2019-20 from next week and hold the first meeting with ministers of steel, power and housing and urban development to finalize revised expenditure for current fiscal and projections for the next financial year. A series of meetings with different ministries and department will commence from October 12 and continue till November 16.

The coming week will also mark the start of July-September quarter earnings season, with IT bellwether TCS reporting its Q2 numbers on October 11.  Other than these, Tata Elxsi, S R K Industrie, Bandhan Bank, Zee Entertainment Enterprises, Karnataka Bank, Hindustan Unilever among others will also be posting their earnings.

On the global front, market-participants would watch key economic data from US starting from NFIB small-business index on October 09, followed by producer price index and wholesale inventories on October 10. On the macro-economic front, weekly jobless claims, consumer price index (CPI), core CPI and Federal budget on October 11. Moreover, import price index and consumer sentiment index on October 12.

Top Gainers

  • Wipro up by 1.99% was the top gainer on Nifty for the week - Most of the information & technology (IT) sector stocks maintained upward trend as Indian rupee remained weak against the US dollar during the week. The rupee hit a new low breaching 74 per dollar mark for the first time. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion’s share of revenue from exports. The Indian rupee plumbed record lows as global oil prices rose. In a separate development, Wipro completed divestment of data centre operations to Ensono in India for $6 million.
  • Yes Bank up by 1.35% was another top gainer on Nifty for the week – Yes Bank gained after it said it is fully geared up for the succession plan for the post of its MD and CEO and will finalise two external experts for the search committee by October 7. Besides, YES Bank also released its unaudited financial results for the quarter to September. The Bank registered around 41% year-on-year rise in deposits at approximately Rs 2.23 lakh crore in Q2 FY19, while the CASA ratio grew around 28.20% Y-o-Y. Gross non-performing assets stood at around 1.35% of gross advances.

Top Losers

  • Hindustan Petroleum Corporation (HPCL) down by 33.79% was the top loser of the week on Nifty - Oil marketing companies (OMCs) came under pressure after the government asked the them to absorb a Re 1 a litre cut in excise duty on petrol and diesel. The government also cut the excise duty on petroleum products by Rs 1.50 a litre with immediate effect. This is the first time in over four years that prices of either petrol or diesel are being controlled. Besides, a private report stated that the government’s decision will likely lead to Rs 9,000 crore hit in net profits of OMCs.
  • Bharat Petroleum Corporation (BPCL) down by 28.72% was another top loser of the week on Nifty - OMCs came under pressure as oil prices rose on the back of looming US sanctions against Iran's crude exports that are set to start next month. The gains helped claw back some of the losses from the previous session due to rising US inventories and after Saudi Arabia and Russia said they would raise output to at least partly make up for expected disruptions from Iran. Generally, higher crude oil price is negative for OMCs as it impacts their refining and marketing margins.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 11,035.65 on October 1 and lowest level of 10,261.90 on October 5. On the last trading day, the Nifty closed at 10,316.45 with weekly loss of 614.00 points or 5.62 percent. For the coming week, 10,040.35 followed by 9,764.25 are likely to be good support levels for the Nifty, while the index may face resistance at 10,814.10 and further at 11,311.75 levels.

US Market

US markets ended the passing week in red terrain as traders remained worried with report that the Federal Reserve may raise rates more aggressively than currently anticipated. However, markets started the week on optimistic note with amid easing trade concerns after U.S. and Canadian officials agreed on a trade deal to replace the North American Free Trade Agreement shortly before a midnight deadline. The new trade deal, called the United States-Mexico-Canada Agreement, or USMCA, will reportedly provide more market access to U.S. dairy farmers and effectively cap Canadian automobile exports to the U.S. Upbeat economic data too aided sentiments. The payroll processor ADP released a report showing stronger than expected private sector job growth in the month of September. ADP said private sector employment jumped by 230,000 jobs in September after climbing by an upwardly revised 168,000 jobs in August. Street had expected employment to increase by about 185,000 jobs.

Market participants turned pessimistic later during the week after Fed Chairman Jerome Powell said in remarks at the Atlantic Festival in Washington, D.C. that interest rates are a long way from neutral even after recent increases. Powell said the really extremely accommodative low interest rates that they needed when the economy was quite weak, they don’t need those anymore. They are not appropriate anymore. He added interest rates are still accommodative, but they are gradually moving to a place where they will be neutral. He also said they may go past neutral, but they are a long way from neutral at this point.

On the economic front, the Labor Department released a report showing a bigger than expected drop in initial jobless claims in the week ended September 29. 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 edge down to 213,000 from the 214,000 originally reported for the previous week. A separate report from the Commerce Department showed a bigger than expected rebound in factory orders in the month of August. The Commerce Department said factory orders surged up by 2.3% in August after falling by a revised 0.5% in July, while street had expected factory orders to jump by 2.1%.

European Market

European markets ended the passing week mostly lower, on the back of a number of factors including Brexit concerns and worries over the trade tensions between the US and China. The key indices made a cautious opening, as Eurozone manufacturing activity grew at the weakest pace in two years in September. As per final data from IHS Markit, the factory Purchasing Managers' Index fell to 53.2 from 54.6 in August, hitting the lowest level since September of 2016. Adding some worries, France's consumer confidence weakened to the lowest level in more than two years in September. The survey results from the statistical office Insee showed that the consumer sentiment index fell to 94 in September from revised 96 in August. This was the lowest since April 2016. The score was forecast to remain unchanged at August's initially estimated value of 97.

The trade remained lackluster during the week, as the German construction sector saw a loss of growth momentum in September. The data from IHS Markit revealed that the construction Purchasing Managers' Index came in at 50.2 in September, down from 51.5 in August. Separately, UK retailers reported a slower pace of growth in sales volumes in September and expect it to remain so again next month. According to the latest Distributive Trades Survey from the Confederation of British Industry, the retail sales balance fell to 23 percent in September from 29 percent in August. Retailers forecast sales growth to slow slightly next month, with the balance easing to 19 percent. Meanwhile, UK construction sector unexpectedly grew at the weakest pace in six months in September, as all three sub-sectors lost momentum. The survey data from IHS Markit showed that the IHS Markit/CIPS UK construction purchasing managers' index fell to 52.1 from 52.9 in August. In contrast, economists had expected the index to rise to 53.1.

On the economic front, Euro area producer price inflation slowed for the first time in four months during August. As per preliminary data from the statistical office Eurostat, industrial producer prices on the domestic market rose 4.2 percent year-on-year following 4.3 percent in July, which was revised from 4 percent. Besides, UK mortgage approvals decreased in August, while credit card spending of consumers increased from last year. The figures from UK Finance revealed that the number of mortgages approved for house purchases in August decreased to 39,402 from 39,619 in July. In the same period last year, approvals totaled 41,141. Further, the UK manufacturing sector expanded at a faster pace in September. The survey data from IHS Markit and Chartered Institute of Procurement & Supply showed that the manufacturing Purchasing Managers' Index rose to 53.8 in September from 53.0 in August, which was upwardly revised from 52.8.

Asian market

All the Asian equity indices snapped the week’s trade in the negative terrain, following the negative cues from Wall Street as a jump in US treasury yields raised concerns about the outlook for interest rates. Investors remained cautious ahead the US jobs report for September for clues over the next rate hike move in December. Some concern also came with data showing that China's official manufacturing purchasing managers index stood at 50.8 in September versus 51.3 in August, raising concerns about the demand outlook. The Caixin manufacturing PMI declined to 50 from 50.6, the lowest since May 2017. However, Chinese markets remained shut during week for national holidays.

Japanese Nikkei edged lower by over a percent, as a stronger yen weighed on exporters' shares. Sentiments remained down-beat with the latest survey from Nikkei revealing that the services sector in Japan continued to expand in September, but at a sharply slower pace, with a two-year low services PMI score of 50.2. That's down from 51.5 in August. Some pessimism also came with a key quarterly economic survey by the Bank of Japan showing that business confidence among large Japanese manufacturers declined for the third straight quarter. Investors even ignored the latest survey from Nikkei revealed that the manufacturing sector in Japan continued to expand at a steady pace in September, with a manufacturing PMI score of 52.5, unchanged from the previous month.

Seoul stocks fell despite a private survey showing factory activity expanding in September for the first time since March 2018. Malaysia's KLSE Composite index too ended lower as data from the Department of Statistics revealed that the country's exports dropped unexpectedly in August, while imports grew more-than-forecast.
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