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Last session sell-off drag benchmarks lower for the week
Dec-21-2018

It turned out to be a daunting week of trade for Indian equity benchmarks, with major averages losing crucial 35,800 (Sensex) and 10,800 (Nifty) levels on weak global cues as the markets were affected by the US top bank’s plan to continue its balance sheet reduction and the threat of a partial government shutdown. Markets started the week on an optimistic note supported by commerce ministry’s latest data report showing that India’s exports grew by 0.80% to $26.5 billion in November, even as the trade deficit widened to $16.67 billion. Adding some enthusiasm, the Finance Minister Arun Jaitley said that the government will stick to the 3.3% fiscal deficit target in the current financial year. Markets extended gains for next two days as markets participants took support with the Ministry of Commerce’s latest report showing that India’s Foreign Direct Investment (FDI) increased constantly to $60.97 billion in the financial year 2018 (FY18) from $45.15 billion in Financial year 2015 (FY15). Some support also came with Union Minister of Commerce and Industry Suresh Prabhu’s statement that India will be 5 trillion dollar economy in coming 7-8 years. However, selling in last day of the week played spoil sport for the markets and dragged the markets below their respective crucial levels, as traders remained cautious with the central bank’s statement that the total external commercial borrowings (ECB) will now be rule-based and will be capped at 6.5% of the gross domestic product. The limit now works out to be about $160 billion for the current fiscal year, against the actual outstanding of $126.29 billion as on September 30. The central bank already has a rule-based exposure for foreign investors’ exposure in bonds. Foreigners are allowed to invest up to 6% of the outstanding debt.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 220.86 points or 0.61% to 35,742.07 during the week ended December 21, 2018. The BSE Midcap index gained 60.16 points or 0.40% to 15,253.00 and Smallcap index surged 131.86 points or 0.91% to 14,633.62. On the sectoral front, S&P BSE PSU was up by 199.12 points or 2.86% to 7166.43, S&P BSE Power was up by 50.99 points or 2.63% to 1986.95, S&P BSE Oil & Gas was up by 242.75 points or 1.81% to 13654.76, S&P BSE Metal was up by 197.21 points or 1.70% to 11831.79 and S&P BSE Finance was up by 66.84 points or 1.15% to 5857.14 were the top gainers on the BSE sectoral front, while S&P BSE Information Technology was down by 769.75 points or 5.25% to 13893.80, S&P BSE TECK was down by 358.56 points or 4.90% to 6956.39, S&P BSE Consumer Durables was down by 516.26 points or 2.47% to 20413.65 and S&P BSE Fast Moving Consumer Goods was down by 61.09 points or 0.52% to 11713.09 were the top losers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 51.45 or 0.48% to 10,754.00. On the National Stock Exchange (NSE), Bank Nifty was up by 43.65 points or 0.16% to 26,869.65, Nifty Mid Cap 100 increased 113.20 points or 0.64% to 17,704.80 and Nifty Next 50 gained 203.30 points or 0.73% to 28,017.35, while Nifty IT was down by 643.55 points or 4.33% to 14,207.85.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week, with gross purchases of Rs 21479.41 crore and gross sales of Rs 20874.49 crore, leading to a net inflow of Rs 604.92 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 7643.51 crore against gross sales of Rs 5215.62 crore, resulting in a net inflow of Rs 2427.89 crore. In hybrid segment, FIIs stood as net buyers, with gross purchases of Rs 5.46 crore and gross sales of Rs 3.57 crore, leading to a net inflow of Rs 1.89 crore.

Industry and Economy

The Reserve Bank of India (RBI), in consultation with the government, has decided to have a rule-based dynamic limit for outstanding stock of External Commercial Borrowings (ECBs) at 6.5% of Gross domestic product (GDP) at current market prices. The RBI has said that based on the GDP figures at March-end 2018, the soft limit works out to $160 billion for the fiscal year 2018-19. The outstanding stock of ECBs as on September 30, 2018, stood at $126.29 billion.

Outlook for the coming week

In the passing week, Indian markets pared their weekly gains and settled with a cut of around half a percent, amid profit booking by investors on rising tension between the US and China amid fears of a potential US government shutdown.

The coming holiday truncated week is likely to be very volatile, as the December F&O series expiry is scheduled on December 27. Frontline indices will stay shut for trade on December 25 on account of ‘Christmas’. In the coming week, investors will look forward to the GST Council meet slated to be held on December 22, which is likely to rationalize the 28% slab by cutting tax rates on construction items, like cement. It is also likely to slash tax rates on automobile tyres to 18% from 28%.

PSU Banks will be in action, as RBI Governor Shaktikanta Das will meet representatives of private sector banks and cooperative banks next week to discuss issues and concerns. It is believed that heads of state-owned bankers will discuss the issues related to relaxing the prompt corrective action (PCA) framework, liquidity and credit flows to MSMEs.

Global market-participants will first be eyeing on Chicago Fed National Activity Index on December 24, Redbook, S&P Corelogic Case-Shiller HPI on December 26, Jobless Claims, FHFA House Price Index, New Home Sales, Consumer Confidence and EIA Petroleum Status Report on December 27 and finally International Trade in Goods and Pending Home Sales Index on December 28.

Top Gainers

  • Bharat Petroleum Corporation (BPCL) up by 11.87% was the top gainer on Nifty for the week - Most of the oil marketing companies (OMCs) gained traction after a slump in global crude oil prices, which dropped to over 15-month low. Generally lower crude oil price is positive for OMCs as it improves their profit margins. Crude oil prices tumbled on Tuesday after reports of swelling inventories and forecasts that record US and Russian output will hit a market that may see weaker demand if global growth deteriorates as many expect. US crude futures were down 7.3%, while Brent declined 5.6%.
  • Hindustan Petroleum Corporation (HPCL) up by 11.06% was another top gainer on Nifty for the week - HPCL gained on reports that a change in government in Rajasthan will likely help the company to commission its proposed Rajasthan refinery by 2022, a project that has been languishing since its foundation stone was laid in 2013 by the then Congress president Sonia Gandhi. Besides, easing oil prices supported the OMCs. Crude oil prices have fallen almost 30% from their October highs. Moreover, MK Surana, chairman and MD of HPCL said its gas distribution business received license of 12 areas.

Top Losers

  • Zee Entertainment down by 9.30% was the top loser of the week on Nifty - Zee Entertainment came under pressure on report that concerns regarding the stake sale by promoters, rising competition, higher investments in the over-the-top (OTT) application segment, and near-term pressure on subscription revenues. Besides, the company is all set to launch of the world's first fully immersive media experience, a platform empowering users to engage all five of their senses - touch, smell, taste, sound and sight - through technology.
  • Infosys down by 7.39% was another top loser of the week on Nifty - Most of the Information Technology (IT) stocks came under pressure as rupee strengthened against the dollar. During the week, most of the time rupee traded higher against dollar. A firm rupee adversely affects operating profit margins of IT firms as the sector derives a lion's share of revenue from exports. Besides, Infosys has signed an agreement to divest its shares in CloudEndure, for a total consideration of approximately $15.3 million. Meanwhile, the company appointed Nilanjan Roy as chief financial officer, effective March 01, 2019.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 10,985.15 on December 19 and lowest level of 10,738.65 on December 21. On the last trading day, the Nifty closed at 10,754.00 with weekly loss of 51.45 points or 0.48 percent. For the coming week, 10,666.72 followed by 10,579.43 are likely to be good support levels for the Nifty, while the index may face resistance at 10,913.22 and further at 11,072.43 levels.

US Market

The US markets ended lower during the passing week after the Federal Reserve announced its widely expected decision to raise interest rates by a quarter point. While the Fed also forecast fewer than previously estimated rate hikes next year, the central bank's tone was not as dovish as some traders had hoped. The central bank said its Federal Open Market Committee decided to raise the target range for the federal funds rate by 25 basis points to 2.25 percent to 2.50 percent.  The Fed's median projection for the federal funds rate in 2019 was reduced to 2.9 percent from the 3.1 percent expected in September. The median forecasts for rates in both 2020 and 2021 were also lowered to 3.1 percent from 3.4 percent, while the projection for longer run rates was downwardly revised to 2.8 percent from 3.0 percent.  Further, the central bank also lowered its forecasts for real GDP growth in 2018 and 2019 to 3.0 percent and 2.3 percent, respectively. The Fed previously projected 3.1 percent growth in 2018 and 2.5 percent growth in 2019.

Meanwhile, renewed concerns about US-China trade talks also weighed on the markets after the Justice Department announced the criminal indictment of two computer hackers associated with the Chinese government. The unsealed indictment charges the two Chinese nationals with conspiracy to commit computer intrusions, conspiracy to commit wire fraud, and aggravated identity theft. On the economic front, after reporting a notable decrease in first-time claims for US unemployment benefits in the previous week, the Labor Department released a report showing initial jobless claims rebounded in the week ended December 15th. The report said initial jobless claims rose to 214,000, an increase of 8,000 from the previous week's unrevised level of 206,000.

A separate report released by the Conference Board showed a modest increase by leading US economic indicators in the month of November. The Conference Board said its leading economic index (LEI) rose by 0.2 percent in November after falling by a revised 0.3 percent in October. Street had expected the index to come in unchanged compared to the 0.1 percent uptick originally reported for the previous month. The LEI increased slightly in November, but its overall pace of improvement has slowed in the last two months. Besides, existing home sales in the US unexpectedly showed a significant increase in the month of November, according to a report released by the National Association of Realtors (NAR). NAR said existing home sales surged up by 1.9 percent to an annual rate of 5.32 million in November after jumping by 1.4 percent to a rate of 5.22 million in October. Street had expected existing home sales to drop by 0.6 percent.

European Market

European markets ended the passing week lower, as deepening concerns over uncertain economic outlook sent investors fleeing for safety. The Fed's less dovish than expected policy statement has added to investor concerns over slowing global growth. The start of the week was negative, as Germany's business confidence eased for a fourth straight month in December to its lowest level in two years, as businesses were increasingly worried about the political developments in Europe and a slowing global growth, suggesting that the biggest economy in the euro area may slide into a technical recession. The Ifo Business Climate Index dropped to 101 from 102 in November. Domestic sentiments also got hit after Germany's producer price inflation remained at its highest level in 19 months in November. The data from the Federal Statistical Office showed that producer prices rose 3.3 percent year-on-year in November, same as in October.

Trade remained lackluster throughout the week, amid reports that Eurozone construction output dropped in October after rising in the previous month. The figures from Eurostat showed that construction output fell 1.6 percent from September, when it grew 2.1 percent. Investors paid no heed towards a report that Eurozone's current account surplus increased in October after declining in the previous month, but was lower than the same month last year. As per figures from the European Central Bank, the current account surplus rose to EUR 23 billion from EUR 18 billion in September. In October 2017, the surplus was EUR 35 billion. The street even overlooked UK retail sales which rose for the first time in three months in November to surpass economists' expectations, thanks to Black Friday promotions and record online spending, while the long term trend was that of a slowdown, amid the persistent Brexit uncertainties.

On the inflation front, Eurozone consumer price inflation in November eased more than initially estimated. The latest data from Eurostat showed that the consumer price index rose 1.9 percent year-on-year, which was slower than the 2 percent flash estimate on November 30. The figure is the lowest since May, when it was at the same level. Besides, UK consumer price inflation slowed in November to its lowest level in twenty months, in line with economists' expectations, helped by falling petrol prices. According to the data from the Office for National Statistics, the consumer price index rose 2.3 percent year-on-year following a 2.4 percent increase in October. The latest inflation rate was the lowest since March 2017, when inflation was at the same level.

Asian Market

All the Asian equity benchmarks, barring KLSE composite ended in the negative terrain during the passing week, as growing worries over the prospects for the world economy prompted investors to shun equities and seek safe-haven assets.

Japanese Nikkei remained the top looser in the Asian pack, declining by over five and half percent, as the yen strengthened against dollar. Sentiments remained sluggish with data showing that Japan’s export growth slowed to a crawl in November as shipments to the United States and China weakened sharply, in a sign slowing external demand and a Sino-U.S. trade dispute may leave the world’s third-largest economy underpowered over the next year. Some pessimism also came with the Bank of Japan maintaining its ultra-loose monetary policy, and reaffirmed its view on the economy, citing stagnant inflation and a looming consumption tax hike next year.

Chinese Shanghai too edged lower by around three percent, despite the country's central bank rolling out a new lending tool to support lending to small and private firms. Traders were cautious as President Xi's highly anticipated speech on four decades of reforms as well as fresh monetary support measures announced by the People's Bank of China failed to ease investor concerns over slowing economic growth.
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