Indian markets witnessed euphoric rally during the Budget week with key gauges surpassing their crucial 28,200 (Sensex) and 8,700 (Nifty) bastions, garnering gain of over a percentage point. Though, markets made a feeble start of the week with frontline gauges losing around a percent in first two sessions of trade, as traders reacted negatively to economic survey's cut in Gross Domestic Product (GDP) growth projections. However, local bourses made a stunning comeback on the Budget day and rallied around two percent after getting relief from the Union Budget where there was no hike in STT and the long term capital gains rules were untouched. Afterwards, markets gained marginally in last two sessions of the week. Traders took some encouragement with Finance Minister Arun Jaitley maintaining fiscal prudence in the Budget. The foreign investors too had renewed interest with the Finance Minister tweaking the domestic transfer pricing rules and exempting some FPIs from indirect transfer provision. Some support also came with the American industry bodies lauding the Budget, saying Finance Minister Arun Jaitley has done an 'admirable job' in creating a vision that will propel the domestic economy while remaining cognizant about foreign investors eying the Indian market. Also, the Economic Affairs Secretary Shaktikanta Das said that the government is committed to fiscal prudence. So giveaways bordering on populism are something which the government does not believe in. Traders shrugged off report of contraction in services PMI for third straight month in January. The seasonally adjusted headline Nikkei India Services Business Activity Index came in at 48.7 in January.
BSE movement for the week
The Bombay Stock Exchange (BSE) Sensex surged 358.06 points or 1.28% to 28,240.52 during the week ended February 03, 2017. The BSE Mid-cap index was up by 320.68 points or 2.47% to 13,285.41, while the Small-cap index rose 309.98 points or 2.36% to 13,422.10. On the sectoral front, S&P BSE Realty was up by 70.99 points or 5.14% to 1451.89, S&P BSE Fast Moving Consumer Goods was up by 290.13 points or 3.38% to 8864.27, S&P BSE Finance was up by 125.22 points or 2.82% to 4560, S&P BSE Bankex was up by 571.74 points or 2.53% to 23137.98 and S&P BSE Healthcare was up by 275.76 points or 1.84% to 15254.98 were the top gainers on the BSE sectoral front, while S&P BSE Information Technology down by 186.08 points or 1.88% to 9698.6, S&P BSE Power down by 13.08 points or 0.60% to 2181.29, S&P BSE Auto down by 54.20 points or 0.24% to 22147.15, S&P BSE Teck down by 5.06 points or 0.09% to 5425.55 and S&P BSE Oil & Gas was down by 3.20 points or 0.02% to 13100.48 were the top losers on the BSE sectoral space.
NSE movement for the week
The Nifty was up by 99.70 points or 1.15% to 8,740.95. On the National Stock Exchange (NSE), Nifty Next 50 rose 422.85 points or 1.80% to 23,943.15, Nifty Midcap 100 edged higher by 393.85 points or 2.52% to 16,035.20 and Bank Nifty was up by 488.50 points or 2.48% to 20,196.80. On the other hand, Nifty IT was down by 156.05 points or 1.53% to 10,025.80.
FII transactions during the week
Foreign Institutional Investors (FIIs) were net buyers in equity segment in the week with gross purchases of Rs 26122.52 crore and gross sales of Rs 23914.08 crore, leading to a net inflow of Rs 2208.44 crore. They stood as net buyers in the debt segment with gross purchases of Rs 6024.30 crore against gross sales of Rs 3780.33 crore, resulting in a net inflow of Rs 2243.97 crore.
Industry and Economy
The Economic Survey 2016-17 released on January 31, recommended an Universal Basic Income (UBI) concept as an alternative to the various social welfare schemes to eliminate poverty. The survey stated that the UBI is a powerful idea and now there is need of serious discussion on it even though time is not ripe for its implementation. The survey further stated that the concept of UBI reduces poverty to 0.5 per cent and would cost 4-5 per cent of GDP, based on an assumption that those in the top 25 percent income bracket do not participate. Further it noted that the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3 per cent of GDP.
Outlook for the coming week
The passing week showed the extension of enthusiasm for the Indian markets, with traders reacting positively to the union budget, though there was not many supportive cues in that marketmen were relieved that there was no negative as well.
The coming week will again be crucial for the markets as the RBI’s Monetary Policy Committee policy review meeting will be taking the call on interest rate. The Reserve Bank is likely to go for a 25 basis point cut in interest rate after a conservative fiscal deficit target announcement in the Union Budget 2017.
On the economy front, Index of industrial production (IIP) data for the month of December will be announced on Feb 10. Industrial output belaying a slowdown fear due to demonetisation grew by 5.7% in November compared to a contraction of 3.4% in the same month a year ago.
In the quarter earnings season, traders will be eyeing the important results of Aarti Industries, Abbot India, Allsec Technologies, Astral Poly Technik, Banco Products, GSPL, Gujarat Gas, Lakshmi Machine Works, Marksans Pharma, Poly Medicure, Sagarsoft, Tube Investments, VST Tillers, Ballarpur, BayerCrop, BF Utilities, BHEL, Bluedart, CEAT, EID Parry, Gammon Infra, Gillette, MRPL, NHPC, PNB,Ramco Industries, Tata Steel, TBZ, Titan, United Bank, Aarti Drugs, Birla Corporation, Cipla, Coffee Day, EClerx, Elecon, Hathway, HEG, IGL, Indian Bank, Morpen Lab, NTPC, Siemens, Tata Chem, Thermax, UBL, Union Bank, ABB, Andhra Bank, Auropharma, Bajaj Electrical, Bata India, Bombay Dyeing, BPCL etc. will be reporting their numbers.
On the global front from the US, traders will first be eyeing the Gallup US Consumer Spending Measure on Feb 6, followed by Consumer Credit, International Trade and JOLTS data on Feb 7, MBA Mortgage Applications on Feb 8, Jobless Claims, Wholesale Trade, Fed Balance Sheet and Money Supply on Feb 9, Import and Export Prices, Consumer Sentiment and Treasury Budget on Feb 10.
During the week, CNX Nifty touched the highest level of 8757.60 on February 2, 2017 and lowest level of 8537.50 on February 1, 2017. On the last trading day, the Nifty closed at 8740.95 with a weekly gain of 99.70 points or 1.15 percent. For the coming week, 8599.77 followed by 8458.58 are likely to be good support levels for the Nifty, while the index may face resistance at 8819.87 and further at 8898.78 levels.
The US markets traded under pressure during the passing week as investors grappled with the latest policy decisions by President Donald Trump. There were concerns about President Trump’s approach on foreign affairs amid spats with key allies and trade partners casting a pall over the market. The White House delivered a rebuke to Iran over a recent ballistic missile test, warning that the country could face new sanctions. Trump also reportedly told Mexico that he might send US troops to the country to stop bad hombres. Meanwhile, the Federal Reserve stood pat on interest rates and offered a positive view of the economy. The Fed held interest rates steady in its first meeting since President Donald Trump took office, but painted a relatively upbeat picture of the US economy that suggested it was on track to tighten monetary policy this year. The US central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move. The Fed also highlighted that the unemployment rate, currently at 4.7 percent, was still hovering near its recent low.
There were mixed bags of reports on the economic front. The number of Americans who applied for unemployment benefits in the week stretching from January 22 to January 28 fell by 14,000 to 246,000, an extremely low level that might foreshadow another solid employment report in the first month of the New Year. New claims have tallied less than 300,000 for 100 straight weeks, a streak that last occurred in 1970. The less volatile four-week average of initial claims, meanwhile, rose by 2,250 to 248,000.Continuing jobless claims declined by 39,000 to 2.06 million in the week ended January 21. The Institute for Supply Management said its manufacturing index climbed to 56% last month from a revised 54.5% in December, marking the fifth straight gain. It’s also the highest level since the end of 2014 and the index easily surpassed the 55.3% forecast.
On the other hand, the consumer confidence fell to a reading of 111.8 in January after hitting a 15-year high of 113.3 in December. Consumers’ appraisal of the present improved, to a reading of 129.7 from 123.5, but the expectations index fell to 99.8 from 106.4. The proportion expecting more jobs in the months ahead decreased from 21.7% to 19.8%, and the percentage of consumers expecting their incomes to increase declined from 21.5% to 18%. Business in the Midwest grew in January at the slowest pace since last spring, largely because of a decline in orders.
The European markets showed a volatile trade during the passing week after the Bank of England (BoE) signaled the need to support growth of the UK economy over taming expected rise in inflation. The BoE’s monetary policy committee voted unanimously to leave its bank rate and QE program on hold. The Bank of England has made another dramatic rise in its growth forecast for this year. It expects the economy to grow 2% in 2017, up from a November forecast of 1.4%, which was itself an upgrade from the 0.8% forecast made in August. The Bank also made a striking forecast about the savings rate, which it expects to fall to 4%, the lowest rate since the early 1960s. Inflation seen rising to 2.8% in Q1 2018, falling back to 2.4% in three years’ time. The bank future said that monetary policy can go either way as economic developments unfold.
Britain moved one step closer to a final separation from the EU as members of the UK parliament voted overwhelmingly in favour of allowing the government to begin Brexit negotiations. Members of the House of Commons voted 498 to 114 to advance the bill that would give Prime Minister Theresa May the authority to invoke Article 50 of the Lisbon Treaty -- the formal process of leaving the EU. European Central Bank (ECB) President Mario Draghi said that Europe needs to fix its mistakes and reinforce its commitment to economic openness to protect wealth and political security.
The euro zone economy advanced 0.5 percent on quarter in the three months to December of 2016, following an upwardly revised 0.4 percent growth in the previous period and better than market expectations of a 0.4 percent expansion. Among countries for which data is already available, GDP growth picked up in France, Belgium, Latvia and Lithuania and was unchanged in Spain and Austria. The jobless rate in the euro area declined to 9.6 percent in December of 2016 from a downwardly revised 9.7 percent in November and below market expectations of 9.8 percent. It is the lowest unemployment rate since May of 2009.
All the Asian counters, barring Seoul Composite, edged lower during the passing week, following the lackluster cues from Wall Street and on caution ahead of the release of the monthly U.S. jobs data. Trading sentiments weakened further on uncertainty about what US President Donald Trump means for the global economy.
Japanese Nikkei remained the top looser in the Asian pack, declining by around three percent as the yen strengthened against the US dollar and the Bank of Japan kept its policy settings unchanged at its first meeting of the year, underlining its nervousness about how Trump plans to implement his pro-growth policies. Sentiments weakened further despite the latest survey from Nikkei showing Japan's manufacturing sector picked up steam in January, with a PMI score of 52.7, up from 52.4 in December. Policymakers also decided to maintain its 10-years government bond yield target around zero percent but said they raised their economic growth forecast to 1.5 percent for 2017 fiscal year from an earlier projection of a 1.3 percent growth.
Chinese benchmark which traded for a day only, too edged lower, after Beijing unexpectedly raised short-term interest rates, adding to growing concerns about US President Donald Trump's aggressive policies. Sentiments also remained dampened as a private Chinese manufacturing survey missed forecasts. The Caixin China manufacturing purchasing managers' index dropped to 51 from 51.9 in December, suggesting a loss of momentum in output and new orders.