The bulls tightened grip on Dalal Street and markets ended near all time high levels in the week gone by, after the Lok Sabha cleared four Goods and Services Tax (GST) legislation to pave the way for the rollout of the new indirect tax regime from July 1. However, markets started the week on a pessimistic note, as the private forecaster Skymet said India is likely to receive below-normal rainfall this year owing to an evolving El Nino. If the forecast turns out to be accurate, it could prove worrisome for the economy. Markets witnessed smart pullback on the very next day, as traders took some encouragement with report that manufacturing activity improved in March after three months of decline. The yearly SBI Composite Index, one of leading indicator for manufacturing activity in the Indian economy, bounced back to above 50-mark level to 50.3. Rally got extended for next two days of trade after the Lok Sabha on March 29 passed four crucial legislations to introduce a countrywide GST bringing India closer to a unified tax regime. The Lok Sabha passed the Central GST Bill, 2017 (CGST Bill), Integrated GST Bill, 2017 (IGST Bill), Union Territory GST Bill, 2017 (UTGST Bill) and the GST (Compensation to the States) Bill 2017 after more than eight hours of debate. Sentiments also got some support with Economic Affairs Secretary Shaktikanta Das' statement that GST is an outcome of hard work done over last many years and it would remove the shadow economy. Das has also said that the tax net will widened under the new regime and this may result in reduction of general tax rate. However, markets witnessed consolidation on final day of trade, as traders remained on sidelines ahead of Reserve Bank of India's (RBI) policy review meet next week.
BSE movement for the week
The Bombay Stock Exchange (BSE) Sensex surged 199.10 points or 0.68% to 29,620.50 during the week ended March 31, 2017. The BSE Mid-cap index gained 247.47 points or 1.79% to 14,096.65, while the Small-cap index was up by 356.25 points or 2.53% to 14,433.86. On the sectoral front, S&P BSE Consumer Durables was up by 792.85 points or 5.48% to 15257.34, S&P BSE Capital Goods was up by 363.53 points or 2.26% to 16446.03, S&P BSE Finance was up by 89.64 points or 1.87% to 4885.69, S&P BSE Power was up by 39.02 points or 1.75% to 2274.42 and S&P BSE Bankex was up by 359.75 points or 1.50% to 24420.77 were the top gainers on the BSE sectoral front, while S&P BSE Information Technology was down by 72.60 points or 0.70% to 10365.51, S&P BSE Metal was down by 54.84 points or 0.46% to 11804.46 and S&P BSE Healthcare was down by 44.82 points or 0.29% to 15312.4, were the top losers on the BSE sectoral space.
NSE movement for the week
The Nifty was up by 65.75 points or 0.72% to 9,173.75. On the National Stock Exchange (NSE), Nifty Next 50 gained by 313.95 points or 1.27% to 25,119.45, Bank Nifty increased by 321.60 points or 1.52% to 21,444.15 and Nifty Midcap 100 was up by 261.05 points or 1.54% to 17,197.15. On the other hand, Nifty IT was down by 65.70 points or 0.61% to 10,703.25.
FII transactions during the week
Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week with gross purchases of Rs 48313.18 crore and gross sales of Rs 39254.77 crore, leading to a net inflow of Rs 9058.41 crore. They stood as net buyers in the debt segment with gross purchases of Rs 14217.61 crore against gross sales of Rs 4777.22 crore, resulting in a net inflow of Rs 9440.39 crore.
Industry and Economy
In order to boost the textile sector, the government is working on the much-awaited new National Textiles Policy, with an aim to achieve $300 billion textiles exports by 2024-25 and envisages creation of additional 35 million jobs. The policy will focus on a three-pronged approach to boost the growth of Indian handicraft sector, which is facing tough competition from international players. The policy’s three pronged approach involves incentivising expansion of production base for quality manufacturing of handicraft products used for interior decoration and lifestyle purposes. It will focus on promoting premium handicraft products for the niche market along with preservation and protection of heritage and endangered crafts. The textile ministry is also focusing on promoting premium handicraft products for the niche market along with preservation and protection of heritage and endangered crafts.
Outlook for the coming week
Markets remained firm in the passing week and despite the final day of consolidation, the benchmarks continuing their upsurge remained near the record highs, supported by some positive development on the domestic front and FII fund inflows.
In the coming week traders will be eyeing the major development from the policy front as the next meeting of the Monetary Policy Committee (MPC) is scheduled for April 5 and 6. The Reserve Bank of India (RBI) is likely to keep key interest rates unchanged on April 6, while there is scope for a rate cut in the August.The coming week will also mark the new month and financial year of trading and traders will be reacting to different data points including the Core sector data and the monthly sales numbers of the auto companies.
On the economy front traders will be eyeing the Nikkei India Manufacturing PMI data to be released on April 3. The Manufacturing PMI rose to 50.7 in February from 50.4 in January, suggesting further improvement in manufacturing sentiment. Nikkei India Services PMI data will be released on April 6. The services sector expanded in February recovering from demonetisation-related disruption, rising to 50.7 in February from 49.4 in January.
On the global front from the US, traders will first be eyeing the PMI Manufacturing Index, ISM Mfg Index and Construction Spending data to be released on April 3, followed by Motor Vehicle Sales, International Trade and Factory Orders, ADP Employment Report, ISM Non-Mfg Index and FOMC Minutes on April 5, Jobless Claims on April 6 and finally Employment Situation, Wholesale Trade and Consumer Credit on April 7.
During the week, CNX Nifty touched the highest level of 9,191.70 on March 31, 2017 and lowest level of 9024.65 on March 27, 2017. On the last trading day, the Nifty closed at 9,173.75 with a weekly gain of 65.75 points or 0.72 percent. For the coming week, 9068.37 followed by 8962.98 are likely to be good support levels for the Nifty, while the index may face resistance at 9235.42 and further at 9297.08 levels.
The US markets were relieved during the passing week as investors’ cheered better-than-expected economic data and digested hawkish comments from Federal Reserve speakers. Dallas Federal Reserve Bank President Robert Kaplan said that he would support further interest rate hikes if the US economy takes more steps toward reaching the Fed’s goals of full employment and 2% inflation. Kaplan, who votes this year on Fed policy, repeated his view that the economy will likely grow about 2.25% this year, but could grow faster, or more slowly, depending in part on the policies the new administration implements. Kaplan added that once the Fed has raised rates a bit further, it will need to start shrinking its massive balance sheet by allowing maturing mortgage-backed securities and Treasuries run off. Fed Vice Chairman Stanley Fischer said the Federal Reserve is likely to raise short-term interest rates twice more before the end of the year.
There were encouraging reports on the economic front, the US grew slightly faster at a 2.1% pace in the fourth quarter and corporate profits rose again, offering further evidence that the economy entered 2017 on stronger footing than it did a year earlier. Gross domestic product, the official scorecard for the economy, was revised up from 1.9% annual rate of growth owing to higher spending on gasoline and travel-related services. Consumer spending in the fourth quarter was raised to a 3.5% from 3%, largely accounting for the revision to GDP. The number of Americans who applied for unemployment benefits in late March dropped by 3,000 and stood at 258,000, keeping new claims near the lowest level in decades. New jobless claims have been under the key 300,000 threshold for 108 straight weeks, the second longest stretch since the early 1970s.
Meanwhile, an early look at US trade patterns in February shows a nearly 6% drop in the nation’s trade deficit, reversing a big increase in the prior month. The trade gap in goods - services is excluded - fell to $64.8 billion in February from $68.8 billion in January. Wholesale inventories, meanwhile, jumped 0.4% in February and retail inventories also rose 0.4%. The decline in the trade deficit and the increase in inventory production could give a boost to gross domestic product in the first quarter. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in January compared to the same period a year ago, an acceleration from its 5.5% yearly increase in December.
The European markets senses some relief during the passing week as investors came to terms with the official launch of Brexit proceedings and digested reports regarding the European Central Bank (ECB). UK Prime Minister Theresa May triggered the formal two-year process of negotiations that will lead to Britain leaving the European Union after 44 years in a process popularly known as Brexit. A letter invoking Article 50 of the Lisbon Treaty and officially notifying the EU of Britain’s decision to withdraw from the bloc was hand-delivered to European Council President Donald Tusk in Brussels. The prime minister acknowledged there would be consequences to leaving, and she said the UK accepts it, cannot cherry pick and stay in the single market without accepting free movement. The Bank of England said that Britain-based banks should take steps to ensure they do not have to curb lending suddenly if the country leaves the European Union in a disorderly way.
The German Finance Ministry is worried that there will be turbulence on the financial markets if there is a hard Brexit. An abrupt exit could trigger dislocations, with British banks no longer able to offer their services in the EU and banks in the EU finding they no longer have access to the financial center in London. The ministry is also worried that the two-year negotiation period between Britain and the EU will not suffice to conclude a free trade deal with Britain and that would mean there are significant risks for the financial markets. Germany’s DIHK Chambers of Commerce said that Britain’s departure from the European Union will significantly hurt German firms business with the country and investment will decline strongly in the long term.
European Central Bank (ECB) could consider early tapering if economy improves further. Several policymakers argued that the ECB needs to stick to its already laid out policy path, although a top conservative urged them to leave the door open to a more rapid reduction in stimulus. Economic growth is gaining momentum and the euro zone may be on its best economic run in a decade. But inflation is still not moving decisively higher, the policymakers argued, hinting at little appetite for now to amend the ECB’s policy stance.
All the Asian equity indices, barring Straits Times, edged lower during the passing week as investors assessed the possible effects of a hard Brexit as the U.K. began the formal process of exiting the European Union. Some concern grew in the region with US President Donald Trump’s statement that the meeting with China will be a very difficult one in that they can no longer have massive trade deficits and job losses.
Chinese benchmark -- Shanghai Composite --edged lower by around one and half percent during the week, on concerns over tightening liquidity and stepped-up regulation in the property market. Sentiments remained dampened despite data showing that activity in China's vast manufacturing sector expanded at a faster pace than expected in March with a PMI score of 51.8, beating forecasts for 51.7 and up from 51.6 in February. Moreover, solid data from the National Bureau of Statistics showed that China's industrial profits grew sharply in the first two months of the year, driven by faster rise in prices of coal, steel and crude oil.
Japanese Nikkei too edged lower by over one and half percent, as the dollar recovered from its lowest level since November against the yen on hopes Trump would be able to enact promised tax cuts and infrastructure spending. Sentiments remained down-beat with data showing that sales rose 0.2 percent in February from the previous month, missed forecasts for 0.3 percent growth. Investors also overlooked data that Japan's core consumer price inflation rose for a second consecutive month in February, giving relief for the Bank of Japan in its fight against deflation.