REUTERS - Indian markets posted their third weekly gains, shrugging off negatives on continued liquidity and short-covering. The Nifty neared the 10,000 mark, gaining 1 percent with mid-caps clearly outperforming.
Investors chose to ignore dismal first-quarter GDP data, disappointing fiscal numbers and ongoing geopolitical tensions between the United States and North Korea.
Markets took solace from the fact that the Reserve Bank of India (RBI) might go in for a rate cut after the GDP numbers. Better-than-expected auto numbers for August and gains in the pharma index also aided the rally, as did easing of tensions on the India-China front. Gold continued to surge.
Moody’s Investors Service said that its outlook on the Indian banking system is “stable”, with the system’s ongoing progress in managing legacy asset issues offsetting the significant capital shortfalls that some banks continue to face.
The RBI sent a second list of defaulters with 26 companies to commercial banks. Videocon Industries and JP Associates are two large companies featuring in a list amounting to over 1 trillion rupees of debt.
The inter-ministerial group has submitted its report on telecom sector woes, which will be considered by the Telecom Commission scheduled to meet on Sept. 8. It has recommended a reduction in licence fee and spectrum usage charges under the new telecom policy.
The recent RBI annual report suggested 99 percent of demonetised currency has come back into the system. Prominent voices dubbed the demonetisation exercise a failure, but Finance Minister Arun Jaitley defended the move saying that the motive behind demonetisation was not just to weed out black money, but also to increase transparency, digitisation, tax base, minimize cash in the economy and to curb terror funding. There has been a clear shift from the initial declared motive for demonetisation.
Automobile numbers for August came in better than expected, as uncertainties surrounding Goods and Services Tax (GST) were cleared at the dealer level with restocking, and demand conversion was higher with prices reduced for a number of models.
On the macro data front, India’s first-quarter GDP growth slipped below 6 percent to a fresh three-year low of 5.7 percent - lower than market expectations - led by lower growth in private consumption. GDP growth in FY18 is expected to remain weak with second-quarter figures expected to be much the same. The government is hopeful that the economy will pick up pace later, but the FY18 GDP figures could end up below the 7 percent mark.
The fiscal deficit stood at 5.05 trillion rupees ($79.01 billion) for April-July or 92.4 percent of the budgeted target for the current fiscal year ending in March 2018.
The deficit was 73.7 percent of the full-year target during the same period a year ago. It looks like a challenging task for the government as it aims to trim the fiscal deficit to 3.2 percent of GDP in FY18 (compared with 3.5 percent the previous year).
The Nikkei manufacturing PMI rose to 51.2 in August, up from a multi-month low of 47.9 in July, indicating a partial rebound in factory output after the rollout of GST.
Global markets on Monday are expected to react to crucial U.S. nonfarm payrolls data which rose by 156,000 - below market estimate of 180,000 - lowering expectations for another Fed rate hike this year.
On the macroeconomic data front, India’s service sector PMI for August is expected to be out on Tuesday while the all-important European Central Bank policy outcome is due on Thursday.
The macro numbers as well as the demonetisation figures reconfirm my fears over the previous months, but “hope” and “liquidity” seem to be ignoring them. One needs to see whether markets are able to sustain Nifty at over 10,000.
On the geopolitical front, North Korea could again throw up challenges for the market, so it is better to be cautious. Investors may cheer the new Modi Cabinet on Monday, which could be an intermediate peak for the markets.
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.