Bulls tightened grip on Dalal Street in the week gone by with frontline gauges snapping the week with a gain of around one and half a percent. The market mood remained positive throughout the holiday truncated week and local bourses extended their northward journey for fifth straight week. Domestic gauges started off the week on sanguine note, as traders took encouragement with report that the GST Council in a meeting during weekend cleared the law for compensating states for loss of revenue that they may incur during implementation of Goods and Service Tax. The council's nod has paved the way for the law to be tabled in Parliament in the second half of the budget session beginning March 9. Markets extended northward journey for next couple of days on report that yearly SBI Composite Index (year-on-year) for February 2017 improved to 49.5 compared to last month's index of 47.0, indicating some improvement in sentiment. The monthly Index though declined marginally to 49.2 in February 2017 from 50.9 in Jan 2017 which means IIP growth may continue to contract in January and February 2017. Some support also came with a private report stating that India's millennial population is a massive disruptive force and driven by this supportive demographics along with government's policy action, Indian economy is likely to reach $ 5 trillion by 2025. Also, the government hoping to overshoot the Rs 45,500 crore disinvestment targets for the current fiscal amid strengthening of equity markets. The Finance Ministry had cleared disinvestment in two more PSUs last week. In the final session of the week bourses managed to keep their head above water, though market participants remained concerned with US Fed's statement that it might be appropriate to raise interest rates again fairly soon if incoming data on the labour market and inflation is in line.
BSE movement for the week
The Bombay Stock Exchange (BSE) Sensex surged 424.22 points or 1.49% to 28,892.97 during the week ended February 23, 2017. The BSE Mid-cap index was up by 109.22 points or 0.81% to 13,532.11, while the Small-cap index gained 120.14 points or 0.89% to 13,587.78. On the sectoral front, S&P BSE Oil & Gas was up by 439.03 points or 3.33% to 13624.39, S&P BSE Metal was up by 261.45 points or 2.25% to 11875.2, S&P BSE Consumer Durables was up by 285.38 points or 2.12% to 13731.84, S&P BSE Bankex was up by 383.16 points or 1.63% to 23825.17 and S&P BSE Realty was up by 22.90 points or 1.58% to 1476.52 were the top gainers on the BSE sectoral front, while S&P BSE Power was down by 13.45 points or 0.61% to 2204.83 was the only loser on the BSE sectoral space.
NSE movement for the week
The Nifty was up by 117.80 points or 1.34% to 8,939.50. On the National Stock Exchange (NSE), Nifty Next 50 rose 126.05 points or 0.52% to 24,376.85, Nifty Midcap 100 gained by 188.35 points or 1.16% to 16,357.65, Bank Nifty surged by 325.30 points or 1.58% to 20,876.65 and Nifty IT was up by 162.45 points or 1.54% to 10,689.65.
FII transactions during the week
Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week with gross purchases of Rs 26769.02 crore and gross sales of Rs 20411.76 crore, leading to a net inflow of Rs 6357.26 crore. They stood as net sellers in the debt segment with gross purchases of Rs 1255.46 crore against gross sales of Rs 2536.06 crore, resulting in a net outflow of Rs 1280.60 crore.
Industry and Economy
Moving swiftly on the road to formalizing the biggest reform of the indirect tax regime, the GST council at its 10th meeting, chaired by Finance Minister Arun Jaitley and comprising of representatives of all states and union territories, has cleared the Compensation Law that will legally provide for the Centre making up for any loss of revenue to states in first five years of rollout of Goods and Service Tax (GST) regime. The all-powerful GST council also cleared the final drafting of the anti-profiteering clause to ensure benefit of lower taxes gets shared with consumers. Arun Jaitley said that the council will meet again on March 4 and 5 to finalise crucial draft laws pertaining largely to Central GST (CGST), Integrated GST (IGST) and State GST (SGST), days before the start of the second leg of the Budget Session where the Centre is hoping to get them approved. The Minister also said that after laws are finalized, the council will get down to fixing rates of taxes for different goods and services by fitting them into the four approved slabs of 5, 12, 18 and 28 per cent.
Outlook for the coming week
The passing week was a marvelous one for the markets with bourses taking a one way route, surging to record high supported by the surge in bluechip stocks, though broader markets underperformed but the market mood remained jubilant through the whole holiday truncated week.
The coming week will also mark the start of the new month and lots of data will be announced starting with the Core sector data for the month of January and the monthly auto sales numbers for the month of February, to keep the markets buzzing.
On the economy front, Nikkei India Manufacturing PMI data will be released on March 1. The Nikkei India Manufacturing Purchasing Managers' Index, rose to 50.4 in January from December's 49.6, returning to the above-50 growth zone after December's sudden drop.
Nikkei India Services PMI data for the month of February will be released on March 3. The seasonally adjusted headline Nikkei India Services Business Activity Index though contracted for a third straight month in January to 48.7 but was better than from 46.8 in December 2016.
There will be some important result announcements too during the week, Merck, Sanofi India, Mandhana Industries, Zydus Wellness, National Aluminium, Harita Seating Systems will be announcing their numbers.
On the global front from the US, traders in a data heavy week will first be eyeing the Durable Goods Orders, Pending Home Sales Index and Dallas Fed Mfg Survey data to be released on Feb 27, GDP, International Trade in Goods, Chicago PMI and Consumer Confidence data on Feb 28, Personal Income and Outlays, Gallup U.S. Job Creation Index, PMI Manufacturing Index, ISM Mfg Index, Construction Spending and Beige Book details on Mar 1, Jobless Claims on Mar 2, PMI Services Index, ISM Non-Mfg Index and Fed chair Janet Yellen’s speech on Mar 3.
During the week, CNX Nifty touched the highest level of 8,982.15 on February 22, 2017 and lowest level of 8809.80 on February 20, 2017. On the last trading day, the Nifty closed at 8,939.50 with a weekly gain of 117.80 points or 1.34 percent. For the coming week, 8838.82 followed by 8738.13 are likely to be good support levels for the Nifty, while the index may face resistance at 9011.17 and further at 9082.83 levels.
The US markets rejoiced during the holiday shortened week with Federal Reserve minutes of meeting, which implied that the central bank is comfortable with raising interest rates fairly soon. Many Federal Reserve officials indicated their support for raising rates if the economy continued to strengthen. But the transcript also showed a mood of uncertainty over President Donald Trump’s fiscal policy plans, which have been the biggest boost to stocks during the past few months. Most officials said it would take some time for the outlook on fiscal policy to become clearer. And only a couple of the 17 Fed officials argued that uncertainty over fiscal policy should not delay a near-term rate hike. More Fed officials cautioned against adjusting interest rates in anticipation of policy proposals that might not be enacted, or that, if enacted might turn out to have different consequences for economic activity and inflation than currently anticipated.
Meanwhile, San Francisco Federal Reserve Bank President John Williams warned that the global drop in interest rates since the financial crisis is likely to persist and will make it harder for central banks to keep world economies healthy. The Fed has raised its short-term interest-rate target just twice since the 2007-2009 financial crisis and recession, and many other global central banks have kept their rates pinned near zero or even below. In a view that has gained traction among economists over the past year or two, Williams has argued that even as developed economies recover, interest rates are likely to top out at lower levels than before the crisis because economic growth is on a slower trajectory due to structural factors like aging populations.
There were mixed bag of reports on the economic front, the sales of previously-owned homes hurtled to the highest in a decade in January, a sign of durable demand in the face of higher mortgage rates and leaner supply. Existing-home sales ran at a seasonally adjusted annual pace of 5.69 million, the National Association of Realtors said. That was 3.3% above an upwardly-revised 5.51 million in December and 3.8% higher than a year ago. There were 3.6 months’ worth of homes available for sale in January, the 20th consecutive month in which inventory declined on a yearly basis. Separately, the momentum in both the US manufacturing and service sectors slowed in February.
The European markets were relieved during the passing week as investors focused on fresh corporate earnings reports amid political concerns in France. The head of the euro zone bailout fund Klaus Regling said that Greece will probably be able to borrow money on the markets from the middle of next year and if the next 18 months are put to good use Athens probably won’t need another bailout. Greece and its international lenders agreed to let teams of experts work out new reforms to Greek pensions, income tax and labor market that would allow Athens to eventually qualify for more cheap loans.
In its latest review of member states’ economies released by European Commission, it warned France two months before elections that its economy was out of balance and in need of reforms as it also chided Germany and Italy. France, which holds presidential elections in April and May, had excessive imbalances, the Commission said, noting that even though there was some improvement, it was not enough. The European Commission added that Germany, Europe’s biggest economy, had a persistent current account surplus that showed Germans were saving too much and insufficiently investing. Reducing the surplus would benefit the whole of the euro zone of 19 countries. The current account surplus increased further in 2015 and 2016 and it is expected to remain at a high level.
Consumer prices in the euro area increased 1.8 percent year-on-year in January of 2017, following a 1.1 percent rise in December and in line with preliminary estimates. It is the highest inflation rate since February of 2013, boosted by fuel and food prices. Excluding energy, food, alcohol and tobacco, core inflation remained steady at 0.9 percent. On a monthly basis, prices fell 0.8 percent. The British economy advanced 0.7 percent on quarter in the three months to December of 2016, following a 0.6 percent expansion in the previous period and above the preliminary estimate of 0.6 percent, due to upward revisions within the manufacturing industries.
All the Asian equity benchmarks, barring KLSE composite ended in the green terrain during the passing week, following the positive cues from Wall Street. Investors also digested the minutes of the Federal Reserve's last policy meeting indicated a rate hike would be on the table at the Fed's next meeting in March, should jobs and inflation data come in line with expectations. Hong Kong's Hang Strengthened during the week after Financial Secretary Paul Chan announced measures to support infrastructure and raise tax allowances.
Chinese Shanghai remained the top gainer in the region, higher by over one and half percent after official data showed that China's housing market continued to cool in January, a welcome sign for policymakers worried about a generalized bubble developing in the market. Investor sentiment was also boosted after China's securities regulator unveiled new rules on Friday restricting excessive and frequent fundraising by some listed companies. Moreover, domestic funds piled into financial counters on expectations the world's second biggest economy may have turned a corner.
Japanese Nikkei too edged higher by over half percent, after preliminary data from IHS Markit showed that Japan's manufacturing activity expanded at the quickest pace in nearly three years in February, with output, new orders, employment all increasing at faster rates in the month. Some support also came with the Bank of Japan statement’s that corporate service prices in Japan were up 0.5 percent on year in January. That was in line with expectations and unchanged from the December reading following an upward revision from 0.4 percent.