The Indian equity markets after a strong start of the week lost their direction towards the mid, only to recover mildly in the final days of the week. Traders remained cautious in anticipation of a US interest rate hike next week in the FOMC meeting. Also, they opted to remain on side lines eyeing the results of assembly elections in the five states. The start of the week was on a strong note with Sensex reclaiming the crucial 29000 mark after the GST council moving a step closer towards implementing the goods and services tax (GST) from 1 July, approved two crucial supporting legislations of central GST law (CGST) and the integrated GST (IGST) law. However, it was one day jubilation only and the markets gave up some gains on the very next day, coming off their two years closing high with Deputy Governor of the Reserve Bank of India’s (RBI) statement that the impact of demonetisation on the informal sector is not fully captured in the GDP data and the effects of demonetisation is expected to spill over to certain segments of the economy in this quarter. Market sentiments deteriorated further in the mid report that sovereign wealth funds (SWFs), considered one of the stickiest foreign portfolio investors (FPIs), are reducing bets on Indian equities. The share of SWFs in the total FPI holding in India shrank to 6% in January compared with 10.4% in July 2016. Though, there was some recovery the next day and the markets sensing the exit poll outcome of the 5 states picked up some pace despite report that oil and gold imports will end the four-year trend of moderation in the current account deficit. The final day of the markets got a strong start after the exit poll results indicated a BJP victory in four out of five states which went for assembly election, but cautiousness gripped the markets ahead of the actual results and the major indices could post only modest gains.
BSE movement for the week
The Bombay Stock Exchange (BSE) Sensex gained 113.78 points or 0.39% to 28,946.23 during the week ended March 10, 2017. The BSE Mid-cap index was declined 43.45points or 0.32% to 13,365.59, while the Small-cap index was down by 15.21points or 0.11% to 13,604.96. On the sectoral front, S&P BSE Auto was up by 233.20 points or 1.08% to 21790.97, S&P BSE Bankex was up by 249.83 points or 1.07% to 23625.66, S&P BSE Consumer Durables was up by 113.15 points or 0.82% to 13889.54, S&P BSE Capital Goods was up by 121.85 points or 0.80% to 15429.02 and S&P BSE Finance was up by 34.75 points or 0.76% to 4632.45 were the top gainers on the BSE sectoral front, while S&P BSE Metal was down by 584.24 points or 4.81% to 11554.83, S&P BSE Realty was down by 17.94 points or 1.20% to 1474.37, S&P BSE Healthcare was down by 164.14 points or 1.07% to 15174.84, S&P BSE Oil & Gas was down by 96.41 points or 0.72% to 13281.08 and S&P BSE Information Technology was down by 49.57 points or 0.47% to 10456.6 were the top losers on the BSE sectoral space.
NSE movement for the week
The Nifty was up by 37 points or 0.42% to 8,934.55. On the National Stock Exchange (NSE), Nifty Next 50 declined by 48.85 points or 0.20% to 24,042.35, Nifty Midcap 100 decreased by 72.85 points or 0.45% to 16,291.20 and Nifty IT was down by 56.35 points or 0.52% to 10,749.85. On the other hand, Bank Nifty was up by 231.95 points or 1.13% to 20,727.55.
FII transactions during the week
Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week with gross purchases of Rs 32182.65 crore and gross sales of Rs 23515.20 crore, leading to a net inflow of Rs 8667.45 crore. They stood as net sellers in the debt segment with gross purchases of Rs 3787.13 crore against gross sales of Rs 6722.35 crore, resulting in a net outflow of Rs 2935.22 crore.
Industry and Economy
Moving a step closer towards implementation of the goods and services tax (GST) from July 1, the GST council chaired by Union finance minister Arun Jaitley approved two crucial supporting legislations of central GST (CGST) and the integrated GST (IGST) laws, for this ambitious tax reform. The council will take up for approval the State GST (SGST) and Union Territory-GST (UT-GST) laws at its next meeting on March 16. It has also decided to levy a 5 percent GST (2.5 percent by Centre and 2.5 percent by state) on small hotels, restaurants and dhabas with an annual turnover of up to Rs 50 lakh. Finance Minister Arun Jaitley has said that the CGST, which will give powers to Centre to levy GST on goods and services after union levies like excise and service tax are subsumed, and IGST that is to be levied on inter-state supplies, will go to Parliament for approval in the second half of the Budget session beginning March 9. He further said that the SGST, which will allow states to levy the tax after VAT and other state levies are subsumed in the GST, will have to be passed by each of the state legislative assemblies and UT-GST will also go to Parliament for approval.
Outlook for the coming week
The passing week despite registering some gains remained cautious for the markets, mainly eyeing the assembly election final phase and the exit poll. Traders also remained concerned with the probable rate hike by the US fed next week.
In the coming holiday truncated week (markets will remain closed on March 13 on account of Holi) traders will first be reacting to the five states assembly election results announced during the weekend. If the BJP is able pull it off as per the exit poll results, the markets may make a strong start, on the other hand a hung assembly in one or two states, especially UP may reverse the situation.
On the economy front, Consumer price index (CPI) inflation for the month of February will be announced on Mar 14. CPI or Retail inflation eased to 3.17 per cent in January with a sharp drop in consumer food prices, especially in urban areas.
The Wholesale price index (WPI) inflation for the month of February too will be announced on March 14. Wholesale inflation for January came in at 5.25% compared with 3.39% in December mainly due to costlier fuel and an adverse base effect. Core wholesale inflation, or nonfood, non-fuel inflation too firmed up to a 28-month high of 2.67%.
On the global front from the US, traders in a crucial week will first be eyeing the Labor Market Conditions Index on Mar 13, followed by PPI-FD and NFIB Small Business Optimism Index on Mar 14, Consumer Price Index, Retail Sales, Empire State Mfg Survey, Business Inventories, Housing Market Index, FOMC Meeting Announcement and Forecasts, Fed Chair Press Conference on Mar 15, Housing Starts, Jobless Claims, Philadelphia Fed Business Outlook Survey and JOLTS on Mar 16, Industrial Production and Consumer Sentiment on Mar 17.
During the week, CNX Nifty touched the highest level of 8977.85 on March 7, 2017 and lowest level of 8891.95 on March 8, 2017. On the last trading day, the Nifty closed at 8934.55 with a weekly gain of 37.00 points or 0.42 percent. For the coming week, 8891.72 followed by 8848.88 are likely to be good support levels for the Nifty, while the index may face resistance at 8977.62 and further at 9020.68 levels.
The US markets were under pressure during the passing week amid concerns over growing geopolitical tensions after North Korea tested four ballistic missiles. President Donald Trump accused that his predecessor, Barack Obama, wiretapped him. Some investors were worried that the accusation could distract Trump from his economic agenda of introducing tax cuts and simplifying regulations, which have powered a record-setting rally on Wall Street since the election. The Paris-based Organisation for Economic Cooperation and Development (OECD) forecasted US economic growth would pick up this year and the next on fiscal stimulus plans. In its Interim Economic Outlook, the agency said it sees US real GDP growth of 2.4% in 2017 and 2.8% in 2018. The US economy grew an estimated 1.6% last year. The OECD said US domestic demand would be boosted by increased household wealth and a pick-up in oil output. The Paris-based agency predicted global growth would accelerate to 3.3% from 3.0% in 2016 and to 3.6% in 2018.
There were mixed reports on the economic front. The US trade deficit shot up in January to a five-year high, underscoring the daunting problem faced by a Trump administration determined to reduce the gap. The trade deficit rose 9.6% to $48.5 billion in January from a revised $44.3 billion in December. The wider deficit was spurred by a 2.3% increase in imports of consumer goods such as cell phones from China and other countries. The higher cost of oil also boosted the value of US imports. Imports totaled $240.6 billion in January. US exports, meanwhile, rose a smaller 0.6% to $192.1 billion. The number of Americans who applied for unemployment benefits jumped by 20,000 to 243,000 in early March, but layoffs remained near a 45-year low. The four-week average of initial claims, meanwhile, rose by 2,250 to 236,500.
On the other hand, the factory orders climbed up by 1.2% in January. The Commerce Department said orders have climbed for 6 of the last 7 months and rose 0.3% when transportation was excluded. Industrial machinery orders climbed up by 6.6%, while photographic equipments orders dropped by 15%. The US added 298,000 private-sector jobs in February, the most since April 2014. The ADP report is based on its own data as a payrolls processor, as well as other calculations it doesn’t make public. The increase in productivity among American firms and workers was left unchanged at 1.3% in the fourth quarter, marking the performance in 2016 as the worst in five years. The government’s first revision of fourth-quarter productivity showed little change in output, hours worked or labor costs.
The European markets were relieved during the passing week after the European Central Bank (ECB) reported signs of an improving euro zone economy. ECB president Mario Draghi provided new growth and inflation forecasts and also revealed a more hawkish stance on the future path of monetary policy, despite the fact that the euro area central bank made no changes to policy. The ECB staff increased growth projections for 2017 to 1.8%, from 1.7%, and for next year to 1.7%, from the previous 1.6%, while holding their forecast for 2019 steady at 1.6%. The central bank’s experts also raised their inflation forecast for this year to 1.7%, from the previous 1.3% and to 1.6% from 1.5% for 2018, while leaving the 2019 projection unchanged at 1.7%.
Greece and its international lenders are close to a deal on its bailout review but differences remain on labor issues. The government’s spokesman Dimitris Tzanakopoulos said a comprehensive deal would include a change in Greece’s fiscal mix from 2019 and clarity on medium debt-relief measures. Creditors started fresh negotiations with Athens last week on signing off on a new bailout review under terms of the country’s 86 billion euro ($91 billion) financing facility.
Britain’s upper house of parliament voted to give lawmakers more power to reject the final terms of the country's exit from the European Union, ignoring pleas from Prime Minister Theresa May’s government not to hamstring their negotiations. The vote, which passed by 366 to 268, attaches an extra condition to the ‘European Union (Notification of Withdrawal) Bill’ -- legislation which will give May the power to trigger divorce talks. The euro area economy advanced 0.4 percent on quarter in the three months to December of 2016, the same as in the previous period and in line with the second estimate. Compared with the same quarter of 2015, the bloc’s economy grew 1.7 percent. Year-on-year, the economy advanced 1.7 percent, following a 1.8 percent expansion in the previous three months and in line with preliminary figures.
All the Asian equity benchmarks, barring Shanghai composite ended in the green terrain during the passing week, as the European Central Bank upgraded its growth and inflation forecasts for the euro area, while signaling little urgency to ease policy again in the light of improving economic outlook. Though, investors in the region turned cautious ahead of the release of the closely-watched U.S. monthly jobs report on Friday and next week's Federal Reserve meeting. South Korea's KOSPI remained the top gainer in the region, higher by around a percent after the Constitutional Court decided to remove the country's president for the first time in history.
Japanese Nikkei too surged by over half percent during week, as upbeat US data from payroll processor ADP helped weaken the yen against the dollar and pushed exporter shares higher. Sentiments got boost after data showed that Japan’s economic growth was revised upward for the fourth quarter of 2016, as export-driven business spending offset sluggish consumer demand. According to Japan’s Cabinet Office, real GDP grew by 0.3% in the December quarter, higher than the 0.2% preliminary reading issued in February. Besides, overall bank lending in Japan was up 2.8 percent on year in February, coming in at 510.808 trillion yen. That follows the 2.5 percent increase in January.
Shanghai Composite edged marginally lower during week, as the country's central bank skipped its open market operations for a second straight day to help ease pressure on liquidity in the banking system. Sentiments remained dampened with data showing that China's consumer prices slowed from a year ago, to 0.8%, its slowest pace since January 2015, largely due to falling food prices. However, China's producer price index (PPI) jumped more than expected by 7.8 percent in February from the previous year, the fastest pace since Sept. 2008.