Expert Zone

India Markets Weekahead: Gujarat election result to drive stocks

Markets ended at an over two-week high on Friday as investors turned optimistic after exit polls forecast a victory for the ruling BJP in the Gujarat assembly election. The result will be out on Monday. For the week, the Nifty ended higher by 0.7 percent at 10,333. The broader markets, however, under-performed.

People walk past the Bombay Stock Exchange (BSE) building in Mumbai, India, January 25, 2017. REUTERS/Shailesh Andrade/Files

The rupee ended at a three-month high on dollar selling by foreign banks, closing at 64.04 against the greenback,  compared to the close of 64.44 a week earlier.

Brent crude rose above $65 a barrel for first time since 2015 after an outage at a North Sea pipeline. The rise in oil prices has increased concerns over fiscal deficit and inflation in India. 

Globally, the U.S. Fed raised interest rates by 25 bps as expected and chose not to change its stand on inflation, which it says remains low. The ECB left rates unchanged and hiked its growth forecasts.

The winter session of parliament began on Friday and will end on January 5. The government may introduce over a dozen new bills in the present session, and could also take up 25 pending bills including Surrogacy (Regulation) Bill, 2016, Prevention of Corruption (Amendment) Bill, 2013, Transgender Persons (Protection of Rights) Bill, 2016 and the controversial Financial Resolution and Deposit Insurance Bill, 2017.

The GST Council on Saturday decided to go for a nationwide rollout of the e-way bill from February. Intra-state tracking would be implemented from June.

As per GST rules, ferrying goods worth more than 50,000 rupees within or outside a state will require securing an e-way bill by prior online registration of the consignment. This will enable tax authorities to better track the movement of goods.

Moody’s Investor Service maintained a positive outlook on Indian lenders, albeit high risk emanating from their exposure to the corporate sector. Moderate recovery in the economy and credit offtake is seen driving solvency levels. Moody’s identified China and India as the countries most exposed to high corporate leverage risks.

Cement firms were in focus after the Supreme Court allowed use of petcoke by the cement industry and furnace oil for power generation. The court had earlier requested all states and union territories to move towards a nationwide ban on the use of pet coke and furnace oil to fight pollution. Cement companies had to switch to imported coal, which is more expensive than pet coke.

In a big relief for retailers, the government has proposed to absorb the Merchant Discount Rates (MDR) charges on debit cards for a period of 2 years for transactions below 2000 rupees.

The government also raised the import duty on mobile phones and other white goods from 10 percent to 20 percent to shore up finances and provide additional protection to domestic manufacturers. 

ICICI Securities, a subsidiary of ICICI Bank, filed draft papers with SEBI to raise an estimated 30-40 billion rupees through an IPO.

On the macro front, wholesale inflation accelerated to 3.93 percent in November from 3.59 percent in October on a substantial rise in vegetables prices.

Retail inflation accelerated at a faster pace, rising 4.88 percent in November, compared to 3.58 percent in October. This is above the RBI’s medium-term target of 4 percent and the central bank is likely to continue defying calls from within the government for renewed rate cuts.

India’s direct tax collection during the April-November period grew 14.4 percent to 4.8 trillion rupees. The net direct tax collections represent 49 percent of the total budget estimate of direct taxes for FY18.

On the stock market front, IndusInd Bank and Yes Bank will be included in the Sensex from Monday, replacing Cipla and Lupin from the benchmark index.

Meanwhile, gold as an investment vehicle is losing out to equities in India. Retail investors poured 200 billion rupees into Indian mutual funds in November, whereas Gold ETFs registered a 5 billion-rupee outflow in the last 8 months. 

Exit polls all point to a victory for the BJP in Gujarat, with markets factoring in around 120 seats for the BJP out of 180. There could be another 100-point rally if the BJP manages more than 120 seats, which could finally get sold into.