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Bears take control on Dalal Street in first week of 2019
Jan-04-2019

First week of New Year turned out to be a disappointing one for Indian equity benchmarks, with major averages losing their crucial 35,700 (Sensex) and 10,750 (Nifty) levels. Markets started the week on optimistic cautious note with a report that inflation seems to have become a double-edged sword for policy makers with political opponents attacking the government over farmers getting hit due to low prices for agricultural produce, even as the rate of price rise in 2018 has mostly been contained within the targeted comfort zone. Key gauges gained traction on the very next day with the Finance Ministry’s statement that in order to ensure that the fiscal deficit remains within the target of 3.3% of the Gross Domestic Product (GDP) for 2018-19, the government is closely monitoring the macroeconomic conditions. Traders shrugged off report that the growth of eight core industries slowed to sixteenth-month low of 3.5% in November 2018, as compared to 4.8% in October 2018, due to fall in output of crude oil and fertilisers. However, sentiments turned bearish for next two days, as the government once again missed its Rs 1 lakh crore target of gathering revenue from Goods and Services Tax (GST) in the month of December 2018. The GST collection declined to Rs 94,726 crore in December, lower than Rs 97,637 crore collected in November. Sentiments also remained downbeat after the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance - eased to 53.2 in December from 54 in November. Moreover, the seasonally adjusted Nikkei Services Business Activity Index slipped to 53.2 in December from 53.7 in November. Markets managed to trim some of their weekly losses on last day of the week with a private report that despite crossing the Rs 1-trillion mark twice this year, the goods and services tax (GST) collections are running well behind the budgeted target.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 381.62 points or 1.06% to 35,695.10 during the week ended January 04, 2019. The BSE Midcap index losses 212.61 points or 1.38% to 15,147.60 and Small Cap index slipped 13.28 points or 0.09% to 14,592.41. On the sectoral front, S&P BSE Auto was down by 932.63 points or 4.48% to 19894.17, S&P BSE Metal was down by 432.45 points or 3.70% to 11240.18, S&P BSE Consumer Discretionary Goods & Services was down by 94.81 points or 2.52% to 3672.34, S&P BSE Capital Goods was down by 405.06 points or 2.16% to 18383.76 and S&P BSE Oil & Gas was down by 270.46 points or 1.96% to 13510.67 were the top losers on the BSE sectoral front, while S&P BSE Realty was up by 22.20 points or 1.23% to 1825.20, S&P BSE BANKEX was up by 107.74 points or 0.36% to 30438.12 and S&P BSE Consumer Durables was up by 16.53 points or 0.08% to 20568.90 were the few gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 132.55 or 1.22% to 10,727.35. On the National Stock Exchange (NSE), Nifty IT was down by 239.65 points or 1.67% to 14,146.15, Nifty Mid Cap 100 decreased 156.25 points or 0.88% to 17,636.60 and Nifty Next 50 lost 343.70 points or 1.22% to 27,719.50. On the other side, Bank Nifty was up by 69.75 points or 0.26% to 27,195.00.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 12590.64 crore and gross sales of Rs 14843.67 crore, leading to a net outflow of Rs 2253.03 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 7930.38 crore against gross sales of Rs 5976.92 crore, resulting in a net inflow of Rs 1953.46 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 4.18 crore and gross sales of Rs 11.51 crore, leading to a net outflow of Rs 7.33 crore.

Industry and Economy

Expressing optimism over India’s economic growth, the Finance Ministry in its Year End Review 2018 has stated that the Indian economy is on track to maintain a high growth rate in the current global environment. It said the Indian economy is projected to be the fastest-growing major economy in the current fiscal (FY19) and upcoming fiscal 2019-20 (FY20). It added that this is borne by Gross Domestic Product (GDP) growth of 7.6% in the first half of 2018-19. It also emphasized that the government has taken several steps to boost investors’ confidence.

Outlook for the coming week

In the passing week, Indian markets ended in red terrain with Nifty and Sensex posting losses of more than one percent each on global growth concern.

In the next week, on the economy front, investors will be eyeing the India's industrial production (IIP) data for the month of November that will be releasing on January 11. IIP output rose 8.1 percent from a year earlier in October 2018, following a 4.5 percent growth in the previous month and easily beating market expectations of 5.7 percent advance.

Investors would also be eyeing the GST development, as GST council is slated to meet on January 10 to discuss lowering GST on under-construction flats and houses to 5 per cent, as well as hiking exemption threshold for small and medium enterprises. Further, MSMEs and Non-Banking Financial Companies (NBFC) sector would be in focus as the Reserve Bank Governor Shaktikanta Das to hold meetings with representatives of MSMEs and non-banking financial companies (NBFC) in the next week.

On the global front from the US, traders will first be eyeing Factory Orders and ISM Non-Mfg Index on January 7, followed by International Trade, Redbook and JOLTS on January 8, MBA Mortgage Applications on January 9, Jobless Claims, Money Supply, Fed Balance Sheet, Money Supply and Wholesale Trade on January 10, and finally CPI, Baker-Hughes Rig Count and Treasury on January 11. Additionally, global investors will also be focusing on meeting between China and US, as the US government delegation will travel to Beijing on January 7 to hold trade talks with Chinese officials.

Top Gainers

  • Yes Bank up by 6.49% was the top gainer on Nifty for the week - Most of the banking sector stocks gained traction with Reserve Bank of India (RBI) report stating that the asset quality of banks showed improvement with gross non performing assets' (GNPAs) ratio declining to 10.8% in September 2018 from 11.5% in March 2018. The net NPAs ratio also witnessed a fall at 5.3% in September 2018 as against 6.2% in March 2018. Besides, Yes Bank has sold 2,30,655 equity shares having nominal value of Rs 100 each, constituting 30% of the paid-up share capital of Valecha Investments.
  • Sun Pharmaceutical Industries up by 5.51% was another top gainer on Nifty for the week - Sun Pharma gained on completing acquisition of Japan-based Pola Pharma, through its wholly owned subsidiary, to strengthen its presence in dermatology segment across the globe. Besides, Sun Pharma’s arm -- DUSA Pharmaceuticals, Inc. has been granted preliminary injunctive relief by a federal district court prohibiting defendants Biofrontera Inc., Biofrontera Bioscience GmbH, Biofrontera Pharma GmbH, and Biofrontera AG from using DUSA's confidential and proprietary trade secret information.

Top Losers

  • Eicher Motors down by 12.57% was the top loser of the week on Nifty - Eicher Motors came under selling pressure after its motorcycle division reported 13% fall in sales at 58278 units in December 2018 as compared to 66968 motorcycles sold in December 2017. During December 2018, the number of motorcycles exported increased by 41% to 2252 units from 1601 units in December 2017. Besides, Eicher Motors and Volvo Group’s joint venture (JV) -- VE Commercial Vehicles reported 2.4% increase in sales at 6,236 units for December 2018 against 6,087 units in December 2017.
  • Mahindra & Mahindra (M&M) down by 8.80% was another top loser of the week on Nifty - M&M came under pressure after reporting disappointing sales numbers for December 2018 due to tight liquidity and low buying sentiment. The company has sold 17,404 units of tractors in December, down 6% as compared to 18,488 units sold in the same month last year. Domestic tractor sales were down 2% to 16,210 units, while exports sales almost halved to 894 units. The company’s Auto Sector sold 39,755 vehicles in December 2018 compared to 39,200 vehicles sold during December 2017.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 10,923.60 on January 1 and lowest level of 10,628.65 on January 4. On the last trading day, the Nifty closed at 10,727.35 with weekly loss of 132.55 points or 1.22 percent. For the coming week, 10,596.13 followed by 10,464.92 are likely to be good support levels for the Nifty, while the index may face resistance at 10,891.08 and further at 11,054.82 levels.

US Market

The US markets ended the first week of 2019 on a negative note as weak economic data and a rare sales warning from Apple sparked fresh worries among investors about a global slowdown. Apple CEO Tim Cook said the company expects fiscal first quarter revenue of approximately $84 billion compared to its previous forecast for revenue of $89 to $93 billion. Cook attributed the lower guidance to a significantly greater than expected impact from economic weakness in some emerging markets. Besides, Negative sentiment was also generated on lingering concerns about the outlook for to the global economy following the release of a report showing a contraction in Chinese manufacturing activity in the month of December. The report said the Caixin/Markit manufacturing purchasing managers' index edged down to 49.7 in December from 50.2 in November. The reading below 50 indicated the first contraction in nineteen months.

There were some disappointing reports on the US economic front, indicating a notable slowdown in the pace of growth in U.S. manufacturing activity in the month of December, the Institute for Supply Management (ISM) released a report showing a much bigger than expected drop by its index of activity in the manufacturing sector. The ISM said its purchasing managers’ index tumbled to 54.1 in December after rising to 59.3 in November, slumping its lowest level since hitting 53.4 in November of 2016. While a reading above 50 still indicates growth in manufacturing activity, street had expected the index to show a more modest drop to a reading of 57.9. The much bigger than expected decrease by the headline index partly reflected softening demand, as the new orders index plunged to 51.1 in December from 62.1 in November.

Beside, a report released by the Labor Department showed a bigger than expected increase in first-time claims for U.S. unemployment benefits in the week ended December 29th. The report said initial jobless claims climbed to 231,000, an increase of 10,000 from the previous week's upwardly revised level of 221,000. Street had expected jobless claims to edge up to 220,000 from the 216,000 originally reported for the previous month. Meanwhile, the Labor Department said the less volatile four-week moving average slipped to 218,750, a decrease of 500 from the previous week's revised average of 219,250. The report also said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, rose by 32,000 to 1.740 million in the week ended December 22nd. The four-week moving average of continuing claims also climbed to 1,703,500, an increase of 26,000 from the previous week's revised average of 1,677,500.

European Market

European markets ended the passing week in red terrain, amid concerns about a global economic slowdown. The start of the week was muted, as several markets remained closed ahead of New Year holidays. Sentiments were lackluster throughout the week, as Eurozone manufacturing expanded at the weakest pace since early 2016 in December as new orders fell for a third month and business confidence eroded to a six-year low. The results of the survey by IHS Markit confirmed that the final Eurozone Manufacturing Purchasing Managers' Index, or PMI, was 51.4, unchanged from the flash estimate, but lower than November's 51.8. The trade got hit also after Spain's manufacturing activity grew at the slowest pace since mid-2016 in December, amid economic instability and ongoing weakness in the automobile industry. The survey data from IHS Markit showed that the headline IHS Markit factory Purchasing Managers' Index fell to 51.1 in December from 52.6 in November. The latest reading was the lowest since August 2016.

The markets extended their losses towards end of the week, as British construction sector grew at the weakest pace in three months in December amid a slower rise in commercial work. The survey data from IHS Markit showed the CIPS Purchasing Managers' Index, or PMI, fell to 52.8 from 53.4 in November. The latest reading was in line with economists' expectations. The market participants took a note of reports that  Italy's manufacturing activity decreased at a slower rate in December. As per survey data from IHS Markit, the headline IHS Markit manufacturing purchasing managers' index, or PMI, rose to 49.2 in December from 48.6 in November.

Traders paid no heed towards a report that Germany's employment grew to a record high in 2018 despite a slowdown in the economy. As per preliminary figures from the Federal Statistical Office, the number of employed grew by 562,000 persons or 1.3 percent to an annual average 44.8 million. Investors also overlooked reports that UK manufacturing sector expanded at the fastest pace in six months in December, defying expectations for a slowing, as demand strengthened as manufacturers and clients prepared for Brexit. The CIPS UK manufacturing Purchasing Managers' Index, or PMI, climbed to 54.2 from November's 53.6. On the inflation front, Germany's consumer price inflation slowed sharply in December to its lowest level in eight months. The figures from the Federal Statistical Office showed that the consumer price index rose 1.7 percent year-on-year following a 2.3 percent increase in November. Economists had forecast an inflation rate of 1.9 percent.

Asian market

Asian markets ended the passing week mostly in red terrain with major indices recorded a weekly loss of between 1-3 percent. Sentiments remained downbeat as lower guidance from Apple and political instability in Washington added to global growth concerns. South Korean KOSPI edged lower by over one and a half percent after the country’s manufacturing activity decreased at a slower rate in December, as inflationary pressures eased and business confidence improved, data from IHS Markit showed. The headline IHS Markit manufacturing PMI rose to 49.8 from 48.6 in November.

Japanese Nikkei decline over two percent as the safe-haven yen strengthened, dragging exporters’ shares lower. Traders shrugged off report that the latest survey from Nikkei revealed that the manufacturing sector in Japan continued to expand in December, and at a faster rate, with a PMI score of 52.6. That’s up from the 15-month low of 52.2 in November, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.

Bucking the trend, Shanghai Composite gained after growth in China’s services sector edged higher in December, a private survey showed, helping ease investor concerns over growth. The Caixin/Markit services PMI rose to a six-month high of 53.9 from 53.8 in November. However, China’s manufacturing sector contracted for the first time in 19 months in December due to ongoing trade friction with the U.S.
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