REUTERS - Markets remained volatile throughout the week with sustained selling pressure in the first three trading days after a rise in crude oil prices and concerns over the trade deficit widening to a three-year high. The last two days saw sentiments improving after the Cabinet approved key reforms such as the formation of a Goods and Services Tax (GST) national anti-profiteering authority and hiking the carpet area cap for housing interest subvention.
Friday saw a continuation of the upward move after Moody’s upgraded India’s sovereign credit ratings for the first time in 13 years. Overall, it was an action-packed week with the Nifty comfortably crossing the 10,300 mark, but closing 0.4 percent for the week at 10,283.
On the currency front, the rupee posted the biggest single-day rise in six weeks on Friday on buying by foreign banks based on FII inflows into equities and debt after the Moody’s upgrade. However, bond yields that fell 12 bps on Friday morning closed 1 bps lower.
Crude oil prices had their first weekly fall in six after gaining 23 percent from their June lows. Prices dipped after the International Energy Agency revised its oil demand forecast due to mild early winter temperatures and rising production.
The biggest news event for the week was the rating upgrade by Moody’s Investor Services, which led to a sharp rise in equity indexes on Friday. The upgrade was in anticipation of accelerated growth following a series of economic and social reforms.
The timing of the upgrade was surprising as market participants were expecting the move sometime early next fiscal year, considering the introduction of GST brought some uncertainty in public finances. The broader opinion is that the other two global rating agencies - Fitch and S&P - may not follow in a hurry, based on their cautious views.
Also taking the markets higher was Cabinet approval for the formation of a National Anti-Profiteering Authority (NAA) under GST after it reduced the rates of a large number of goods of mass consumption. The body will ensure that the benefits of the reduction in rates are passed on to consumers.
Reliance-ADAG stocks saw selling pressure after Reliance Communications defaulted on dollar bond interest payments. However, they recovered partially on Friday with the improvement in overall sentiments.
Automobile stocks were in focus after the Ministry of Petroleum & Natural Gas advanced the introduction of BS-VI grade auto fuels in Delhi and its suburbs by two years to April 1, 2018, in a bid to reduce vehicular emissions and improve fuel efficiency. However, this would require oil refining companies to make large investments in fuel upgradation projects and meet the government’s deadline.
Cement shares were in action after the Environment Pollution (Prevention and Control) Authority lifted a ban on construction in New Delhi following an improvement in air quality.
Real estate shares were also in focus after the Cabinet hiked the carpet area of houses eligible for interest subsidy under government schemes. The increase in carpet area will enable buyers to have a wider choice especially in Tier-II and Tier-III towns.
On the IPO front, New India Assurance saw a tepid listing as it debuted at 6 percent discount to its issue price of 800 rupees. Likewise, Khadim India listed at a 3 percent discount to its issue price of 750 rupees. However, HDFC Life had a spectacular debut with a 19 percent gain.
On the quarterly earnings front, Idea Cellular reported a net loss of 11.06 billion in the second quarter of FY18 due to heavy competition, regulatory changes and consolidation in the industry. SpiceJet’s net profit jumped 78 percent led by increase in passenger yield.
Eicher Motors second-quarter PAT jumped 22.8 percent aided by higher revenue amid robust operating income. Sun Pharma second-quarter PAT slipped 59 percent due to the lack of any launches during the quarter and weak operational performance.
On the macro front, WPI inflation accelerated to a six-month high of 3.59 percent in October compared to 2.6 percent rise in September. CPI too quickened to a seven-month high of 3.58 percent in October amid concerns the measure could harden further as crude oil prices rose.
There is a worry that the spurt in both retail and wholesale inflation will eventually cause the monetary policy committee to reverse its easing cycle. India’s trade deficit widened to a 35-month high of $14.02 billion in October as exports dropped for the first time since July 2016.
For the coming week, there are not many triggers to focus on and the earnings season is ending as well. Markets will look for global cues for further direction. Nonetheless, the movement in crude oil prices and the rupee will continue to dictate market trends.
We had a sentiment shift in the markets based on upgrades from reputed international institutions and agencies such as the World Bank and Moody’s, but domestic macro numbers continue to disappoint. The Gujarat election is drawing closer and will have an effect on the markets over the next few weeks. As of now, the Nifty crossing 10,400 levels could be an uphill task while the Nifty 10,000 provides good support.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.