Expert Zone http://blogs.reuters.com/india-expertzone Straight from the Specialists Sun, 23 Oct 2016 05:22:41 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 India Markets Weekahead: Mood upbeat ahead of Diwali http://blogs.reuters.com/india-expertzone/2016/10/23/india-markets-weekahead-mood-upbeat-ahead-of-diwali/ http://blogs.reuters.com/india-expertzone/2016/10/23/india-markets-weekahead-mood-upbeat-ahead-of-diwali/#comments Sun, 23 Oct 2016 05:22:41 +0000 http://blogs.reuters.com/india-expertzone/?p=5995 (Any opinions expressed here are those of the author and not of Thomson Reuters)

A shopkeeper hangs lights for sale, which are used to decorate temples and homes during the Hindu festival of Diwali, in Kolkata, India October 18, 2016. REUTERS/Rupak De Chowdhuri

A shopkeeper hangs lights for sale, which are used to decorate temples and homes during the Hindu festival of Diwali, in Kolkata, India October 18, 2016. REUTERS/Rupak De Chowdhuri

Indian markets closed a tad lower than the psychological mark of 8,700 with gains of 1.3 percent at the close of a volatile week. The Nifty broke below the lower end of the 8,550 – 8,850 trading range before bouncing back the next day. We are back in the range we have been seeing for the last 13 weeks.

With the rise in the dollar index along with cash-based selling by FIIs in equity markets, the rupee has been under pressure but has so far held on to the 67 per dollar mark. One reason for such resilience could be the sharp appreciation of the rupee against currencies such as the euro, pound and the yen. However, with the Chinese yuan hitting a five-year low against the dollar, the rupee may soon start feeling the heat unless the Reserve Bank of India gets into action.

The beginning of the three-day Goods and Services Tax (GST) council meeting to finalise the tax rates initially triggered positivity in the markets. The government had proposed a new four-tier GST rate structure with standard rates at 12 percent and 18 percent. It had also proposed an additional cess on items currently taxed at a rate higher than the proposed 26 percent, such as tobacco products and luxury cars. However, markets turned cautious as deliberations ended without a decision on the rates structure as most states objected to a proposal to levy an additional cess on ultra-luxury and demerit goods. The finance ministry has set a Nov. 22 deadline for building consensus on all the issues in the council for the rollout of the new indirect tax regime from April 1, 2017. I hope the timelines are met and implementation remains on track.

Banking counters were in the limelight this past week. ICICI Bank surged 15 percent after media reports suggested the debt-laden Essar Group has agreed to sell Essar Oil to a consortium led by Russia’s Rosneft. ICICI Bank is among the major lenders to Essar Group and would benefit from the deal’s cash flows.

Also this week, around three million debit cards were compromised in the country’s largest ever security breach that hit 19 banks. Media reports said the vendors’ systems were infested with malware. Although the reported financial loss is minimal, the security breach is a serious issue as India has embraced plastic and electronic money in the last few years. Swift action by stakeholders should control damage and repose faith in the system.

Fitch Ratings expects Indian telecom credit profiles to weaken amid intense competition and high capex requirements in 2017. Pricing power could be eroded as incumbents try to remain competitive with new entrant Reliance Jio’s cheaper data tariffs and free voice and text. Most telecom companies’ free cash flow will be negative, as cash generation is likely to fall short of capex requirements. The latest 30 billion rupee fine by TRAI on Bharti, Vodafone and Idea for denying adequate interconnection to Reliance Jio would be another bone of contention for the players. I expect these irritants to continue in the foreseeable future.

On the global front, the European Central Bank left its ultra-loose monetary policy unchanged but kept the door open for more stimulus in December, putting to rest any talk of tapering its 1.7 trillion euro asset-buying programme.

In the coming week, the next batch of quarterly results and global trends are likely to dictate market cues. The mood is expected to remain upbeat as it is the pre-Diwali week. Needless to say, volatility could remain high as it is also the derivative contract expiry week.

Key results expected this week include Adani Enterprises, Axis Bank, Idea Cellular, Reliance Capital, Asian Paints and Bharti Airtel.

The next two weeks are crucial for markets, which have been in 8,550 – 8,850 range for nearly 13 weeks. Now it is narrowing further as markets are unable to cross the 8,700 levels decisively. Simmering tensions on the India-Pakistan border, GST deliberations, the U.S. elections and subsequent Fed action would be events to be closely watched.

The quality of stocks and pace of movement in specific stocks should be a major cause of concern for veteran investors. This market offers a lot of opportunity to traders for a quick entry and exit, but for an investor it’s time to increase cash levels in the portfolio.

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India Markets Weekahead: Stocks seen consolidating, investors will remain cautious http://blogs.reuters.com/india-expertzone/2016/10/16/india-markets-weekahead-stocks-seen-consolidating-investors-will-remain-cautious/ http://blogs.reuters.com/india-expertzone/2016/10/16/india-markets-weekahead-stocks-seen-consolidating-investors-will-remain-cautious/#comments Sun, 16 Oct 2016 08:04:21 +0000 http://blogs.reuters.com/india-expertzone/?p=5990 (Any opinions expressed here are those of the author and not of Thomson Reuters)

People watch a large screen displaying India's benchmark share index on the facade of the BSE building in Mumbai

People watch a large screen displaying India’s benchmark share index on the facade of the BSE building in Mumbai. REUTERS/File Photo

A truncated week in India witnessed panic selling triggered by a flurry of negative news, turning market sentiment cautious. The Nifty fell 1.3 percent during the week where mid-cap and small-cap indexes continued to outperform their larger peers.

Markets turned jittery after a report on Thursday said a special investigation team has asked for details of investments through Participatory Notes (P-notes), raising concerns that investments through the medium may slow down. According to SEBI data, foreign portfolio investors have invested 2.16 trillion rupees in Indian securities through P-notes as on August 2016. Of this, investments in equities stood at 1.32 trillion rupees. Disappointing IIP data for August added to the negativity.

Geopolitical tensions rose after the U.S. military launched cruise missile strikes on areas in Yemen controlled by Houthi forces in retaliation for failed missile attacks on a U.S. Navy destroyer. On the same day, China reported weak trade data for September as its exports sank 10 percent to $184.5 billion, while imports fell 1.9 percent to $142.5 billion. Benchmark indexes fell that day with weakness prominent in the bond market. Despite FII selling in Indian equity markets, the rupee showed high resilience against the dollar.

The information technology pack remained in focus as Q2 FY17 earnings of sector majors Infosys and TCS unnerved investors because of the likely challenges that could restrain earnings growth. Hindustan Unilever corrected after its parent Unilever Plc warned that sales in India in July-September may be hit due to higher input costs.

In a push on infrastructure, reports said the government may seek parliamentary approval to spend about $7.5 billion more on roads, railways and other public programme over the next five months. This means the government has already exhausted around 73.7 percent of the annual fiscal deficit budget targets in the first four months of the fiscal year. Going by the current scenario, the government’s fiscal deficit target will be hard to maintain.

On the economic data front, IIP declined 0.7 percent in August compared with a revised 2.5 percent decline in July. The silver lining was CPI inflation dipping to a 13-month low of 4.31 percent in September as against 5.05 percent in August. WPI stood at 3.57 percent compared to 3.74 percent in August, raising hopes of further monetary easing by the RBI.

China PPI for September grew by 0.1 percent (vs expectations of -0.3 percent), the first positive reading in almost 5 years. Minutes from September’s FOMC meeting showed that the U.S. Fed still has some concerns about job growth and inflation. However, it could be getting much closer to raising rates, especially with several key Fed members stating that further delays in raising rates could be risky and potentially push the U.S. economy into recession.

A woman buys vegetables at a food superstore in Ahmedabad, India October 13, 2016. REUTERS/Amit Dave

A woman buys vegetables at a food superstore in Ahmedabad, India October 13, 2016. REUTERS/Amit Dave

In the coming week, Indian markets are seen consolidating with investors remaining cautious as corporate results for September quarter are released. Index majors Reliance Industries, YES Bank, HCL Technologies, Wipro and UltraTech Cement will report their earnings, as will ACC, Hindustan Zinc and Cairn India.

Investors will also take note of trade data released on Friday. Exports rose 4.6 percent to $22.88 billion in September, only the second increase in nearly two years. This suggests international demand for Indian goods may be rising. Imports declined 2.5 percent to $31.22 billion, helping narrow the trade deficit to $8.34 billion from $10.17 billion a year earlier.

On the global front, the United States’ Industrial Production data for September will be declared on Monday. On Wednesday, China will report Q3 GDP data (its economy advanced an annual 6.7 percent in the second quarter).  On Thursday, ECB will hold its long awaited October policy meeting to review interest rates and stimulus programmes.

Meanwhile, the third and last U.S. presidential debate between Democrat Hillary Clinton and Republican Donald Trump will take place at the University of Nevada in Las Vegas on Wednesday. Global markets will witness volatility in the run-up to Election Day on November 8.

Coming back to domestic markets, sentiment will be dictated by multiple factors like the upcoming U.S. presidential election, the U.S. Fed’s rate direction, Brexit, the Syrian conflict and tension between India and Pakistan.

The Nifty has managed to close above the major support level of 8,550, but it is now at a critical juncture. Any setback for markets globally or back home could push the index to 8,200-8,250 levels in a short span of time. Unless we see a consolidation at current levels or a correction, it would be prudent to stay on the sidelines.

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India Markets Weekahead: A correction is coming http://blogs.reuters.com/india-expertzone/2016/10/09/india-markets-weekahead-a-correction-is-coming/ http://blogs.reuters.com/india-expertzone/2016/10/09/india-markets-weekahead-a-correction-is-coming/#comments Sun, 09 Oct 2016 07:21:48 +0000 http://blogs.reuters.com/india-expertzone/?p=5984 (Any opinions expressed here are those of the author and not of Thomson Reuters)

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A man looks at a screen displaying news of markets update inside the Bombay Stock Exchange (BSE) building in Mumbai, India, February 11, 2016. REUTERS/Danish Siddiqui/File Photo

A week after India’s “surgical strikes” across the Line of Control, markets regained their composure with the Nifty ending the week higher by 1 percent at 8,697. Trading started on a buoyant note on Monday on positive global cues, but a 25 bps rate cut by the RBI on Tuesday did not have the desired effect on markets and investors sold into the previous day’s gains. The ongoing India-Pakistan tension and renewed possibility of a U.S. Fed rate hike also acted as dampeners. Mid-cap and small-cap stocks continued to outperform their larger peers during the week where FIIs were net buyers to the tune of $253 million.

Monthly automobile sales data for September showed a mixed trend. While the passenger vehicle segment showed strong double-digit growth led by festive demand and improvement in rural sales, the MHCV segment showed double-digit decline due to the high base of the previous corresponding month. LCV sales also showed double digit growth led by improvement in rural demand. The telecom sector remained in focus with the much awaited spectrum auction raising $9.9 billion for the government, well below the $84 billion worth of spectrum on offer. Energy stocks rose after the government cut the price of domestically produced natural gas to $2.50 per mBtu for October-March from $ 3.06 per mBtu in April-September on gross calorific value basis.

Meanwhile, the International Monetary Fund has raised India’s growth forecast to 7.6 percent in 2016-17, up from its earlier projection of 7.4 percent, citing the resilience of its economy and robust growth momentum. The world economy will expand 3.1 percent this year. On the macro data front, Nikkei India Composite PMI Output Index fell from a 42-month high of 54.6 in August to 52.4 in September.

In the coming week, markets are initially expected to react to the U.S. monthly non-farm payroll data for September, which was down from August. Hawkish comments by Fed officials and data indicating that U.S.  unemployment benefit claims in the week ended October 1 fell to the lowest level in nearly four decades have strengthened the case for a rate hike by the U.S. central bank by the end of 2016.

With India’s Q2 corporate earnings season starting next week, investors are sitting on the sidelines for now as the results are key for markets, especially since other domestic triggers like GST and RBI policy review are out of the way. However GST rates are expected to be announced in the third week of October. The coming week is a truncated one as financial markets will be closed on Tuesday and Wednesday due to Dussehra and Muharram festivals.

Index major TCS will report its Q2 earnings on October 13 and Infosys the next day. Expectations are low from IT companies after their managements came out with profit warnings for the quarter due to challenges in BFSI verticals and client-specific issues weighing on growth.

Domestic macro economic data expected in the coming week include industrial production data for August (Monday), retail inflation for September (Thursday) and wholesale inflation for September (Friday).

We are in the midst of a virtuous cycle due to liquidity flows and valuations have become expensive. This type of situation usually leads to a bubble. The Nifty would continue to trade broadly in the 8,550-8,850 range. There seems to be more triggers for a fall than those for sustained gains. These include India-Pakistan tension, the U.S. presidential election, a possible Fed rate hike, earnings season and GST rates, to name a few. I still believe that we could see markets correcting sharply over the next few weeks. Tread with caution.

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India Markets Weekahead: Geopolitics to weigh more than economic data http://blogs.reuters.com/india-expertzone/2016/10/02/india-markets-weekahead-geopolitics-to-weigh-more-than-economic-data/ http://blogs.reuters.com/india-expertzone/2016/10/02/india-markets-weekahead-geopolitics-to-weigh-more-than-economic-data/#comments Sun, 02 Oct 2016 06:37:57 +0000 http://blogs.reuters.com/india-expertzone/?p=5978 (Any opinions expressed here are those of the author and not of Thomson Reuters)

Markets ended lower for the first time in seven months in September as FII inflows slackened due to tensions between India and Pakistan.

Concerns over the possibility that Donald Trump could be the next U.S. president and a $14 billion fine on Deutsche Bank over mis-selling of mortgage securities in the U.S. also weighed on sentiment.

The rupee suffered its worst fall since the Brexit vote in June after India announced “surgical strikes” on militants in Pakistan-ruled Kashmir, but the currency bounced back by the end of the week to close at 66.54 against the dollar.

People watch a large screen displaying India's benchmark share index on the facade of the BSE building in MumbaiIndia’s military action throws up worries of a further rise in tension between New Delhi and Islamabad, leading to a sharp knee-jerk reaction in markets on Thursday.

This fear was reflected in India’s share market Volatility Index (VIX) which shot up by more than 33 percent to 18.45.

Despite a comparatively steady Friday, the undercurrent was that of an “uneasy calm”.

In the energy sector, OPEC unexpectedly agreed on Wednesday to cut oil output in the first such deal since 2008, lifting oil prices. How much each member country will produce will to be decided at the group’s next formal meeting in November.

India on Friday cut the price of domestically produced natural gas on a gross-calorific-value basis to $2.50 mBtu for October-March from $3.06 mBtu in April-September.

The Asian Development Bank maintained its growth estimates for developing Asia for this year and the next at 5.7 percent, saying sustained expansion in China and India can steady the region, but warned of risks from a looming U.S. interest rate hike.

The projections for India were kept at 7.4 percent for this year and 7.8 percent for 2017, driven by strong consumption and an investment revival.

On the macro front, revised data suggest that the U.S. economy’s performance was slightly better than expected as business investment wasn’t nearly as weak as previously reported.

The GDP grew a 1.4 percent in the second quarter, while U.S. consumer confidence rose to 104.1 in September, its highest level since August 2007.

In the coming week, all eyes will be on the RBI’s monetary policy review, the first one after the formation of a six-member monetary policy committee. It will be interesting to see how the new panel functions, especially how the three external members will work with the central bank insiders.

The RBI is expected to maintain status quo for now and maintain a dovish stance.

Concern over escalating tensions between India and Pakistan are likely to persist and could keep investors on the sidelines, at least in the near term.

A government amnesty targeting tax evasion in India has prompted tens of thousands of suspected tax dodgers to disclose nearly $10 billion in undeclared income. This could be one of the positive triggers on Monday.

On the global front, Deutsche Bank said it would fight a $14 billion demand from the U.S. Department of Justice to settle claims it missold mortgage-backed securities.

Concern over the issue is likely to weigh on markets and the banking sector. Investors worldwide are worried that the problem may lead to a crisis in the global financial sector.

To make matters worse for the banking industry, U.S. banking giant Wells Fargo has recently been under investigation for a massive scandal involving dubious sales and business practices.

Investors will also focus on the remaining two U.S. presidential debates to be held on October 9 and 19.

Back home, Markit Economics will announce its India Manufacturing PMI data for September 2016 on Monday and India Services PMI data for September 2016 On Wednesday.

Considering all the above-mentioned factors, the Nifty may remain in a broad 8,550-8,800 range. A fall below 8,550 could take the index to 8,200-8,300 levels.

The recent dip is an opportunity and one could start deploying cash selectively as geopolitical uncertainties will weigh more than economic factors.

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India’s monetary policy outlook: What’s not to like? http://blogs.reuters.com/india-expertzone/2016/09/29/indias-monetary-policy-outlook-whats-not-to-like/ http://blogs.reuters.com/india-expertzone/2016/09/29/indias-monetary-policy-outlook-whats-not-to-like/#comments Thu, 29 Sep 2016 12:42:39 +0000 http://blogs.reuters.com/india-expertzone/?p=5971 A money lender counts Indian rupee currency notes at his shop in Ahmedabad, India, May 6, 2015. REUTERS/Amit Dave/File Photo - RTX2GH3F

A money lender counts Indian rupee notes at his shop in Ahmedabad, May 6, 2015. REUTERS/Amit Dave/File Photo

(Any opinions expressed here are those of the author and not of Thomson Reuters)

Through the scorching heatwave and soaring food prices over the summer, we remained hopeful that inflation will fall. We’ve been saying for a while that reservoir levels were an important determinant of food prices. And given that early rains filled up India’s reservoirs to near-normal levels by August, we were not surprised to see the subsequent sharp fall in food (from 8 percent year-on-year in July to 5.8 percent in August) and overall (from 6.1 percent in July to 5 percent in August) inflation.

And it does not end there. As more of the new crop trickles into the market over the next few months, inflation could fall further. Vegetable prices could completely reverse their summer ascent of 110 bps. Furthermore, higher pulse production on the back of a rapid increase in sowing could reduce inflation by another 40 bps.

All things considered, CPI inflation could fall to under 4.5 percent in the January-March 2017 period. Moreover, inflation is likely to remain below the RBI’s early 2017 target of 5 percent for the next 12 months, opening up space for monetary easing.

With luck, core inflation could also soften
Falling food prices, through the expectations channel, could gently soften stubbornly high core prices. Previously, we found that the strength of growth (i.e. the output gap), while still significant, is not as important in determining inflation as before (i.e. the Phillips curve has flattened). On the other hand, the role of food prices in determining core prices has risen meaningfully. If seasonal food prices drop now, and are kept low due to structural reforms such as e-markets in agriculture and reforms in food distribution, it could also help soften core prices over time.

Some may rightfully ask that if softening food prices matter so much, why didn’t core inflation fall over the last year when food inflation was moderating? And here, we have a nuanced answer. Inflation expectations are impacted by various factors, one of them being the dominant impact of a few crops that remain inflationary despite prices of all others falling. Recall that pulse inflation remained high through the last year (35 percent year-on-year) and this probably prevented inflation expectations falling by too much.

What rate cuts can we expect in the foreseeable future?
The RBI has two objectives – to reach its 5 percent inflation target in early 2017 and keep real rates at the 1.5-2 percent range. Achieving both would open up space for easing by 50 bps. We expect a 25 bps rate cut at both the December and February policy meetings.

A rate cut in October is a close call …
More certain is the continuation of the RBI’s accommodative stance and liquidity infusion. There are still some good reasons why the rate cut could materialise in October. The recent fall in food prices has been sharper than expected, and cutting earlier keeps the RBI a safe distance away from possible Fed hikes. Yet, our base case is for a rate cut in December rather than October. This is because, by December, two new inflation prints which are expected to be well below 5 percent will be available.

Moreover, given that the RBI was highlighting upside risks until its last meeting, it may prefer to move in steps, i.e. change the outlook on inflation now and cut rates in December. Furthermore, to get more bang-for-the-buck for monetary transmission, the RBI may want to get through the period of foreign currency non-resident (FCNR) deposit outflows before it cuts more.

We expect the commentary on the October meeting to be dovish, with the RBI highlighting downside risks to its inflation forecasts (if not actually lowering the forecast). Either approach is likely to be accompanied by a recommitment to its accommodative stance, with the central bank stating once again that it remains data dependent. Furthermore, we also expect it to continue to infuse liquidity into the banking system by buying dollars and government bonds. Our estimates point to a BoP surplus of $25 billion in FY17, and given the possibility of currency leakage to the tune of 2.5 trillion rupees ($37.3 billion) this year (even more than last year’s elevated 2.1 trillion), we expect bond purchases to continue at a rapid clip if the RBI wants to move closer to its aim of closing the rupee deficit.

The decision-making process
It is likely that the policy decision on October 4 will follow an intense discussion between the six members of the new monetary policy committee (MPC) comprising three economists, two senior RBI officials and RBI Governor Urjit Patel. Our study of the situation suggests the outcome will be the same regardless of whether the decision is made by the governor alone (as has been the practice before), or by the MPC. Given institutional tradition and the fact that RBI staff use a common pool of data and analysis, we believe the three RBI members of the MPC will vote as a bloc. And in case there is a tie, the RBI has the casting vote.

What next?
The horizon beyond our projected 50 bps cut in rates is hazy. There are some policy-related upside risks to inflation in the second half of 2017, such as the second round effects of the government wage hikes and a temporary spike in inflation if GST rates are over 18 percent. Some could be overlooked by the RBI given that they would be a one-time jump in inflation. But only when the scale of the increase is known, which will take time, would the RBI be able determine how much of the impact can be safely overlooked.

In light of these risks and the RBI’s desire to eventually move towards the mid-point of the 4 percent +/-2 percent band, we expect the 50 bps rate cuts to be the last in the cycle.

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India Markets Weekahead: All eyes on RBI http://blogs.reuters.com/india-expertzone/2016/09/25/india-markets-weekahead-all-eyes-on-rbi/ http://blogs.reuters.com/india-expertzone/2016/09/25/india-markets-weekahead-all-eyes-on-rbi/#comments Sun, 25 Sep 2016 05:49:51 +0000 http://blogs.reuters.com/india-expertzone/?p=5962 (Any opinions expressed here are those of the author and not of Thomson Reuters)

A police officer stands guard in front of the RBI head office in Mumbai

The Nifty gained 0.6 percent during the week to end at 8,831, in line with strength in global indexes after risk appetite improved on the Fed’s policy decision. Mid-cap and small-cap indexes outperformed their larger peers, gaining 2 percent and 1.5 percent respectively, and FIIs were net buyers to the tune of $445 million. The rupee rose to close at 66.6 against the dollar.

 

The U.S. Federal Reserve kept rates unchanged as widely expected and its stance on monetary policy remains accommodative, thereby supporting further improvement in labour market conditions and a return to 2 percent inflation.

 
A rate hike is likely by the end of the year, but it will depend on economic data going forward. Furthermore, any future pace of tightening is likely to be even slower than previously expected and the Fed has projected a less aggressive path for hikes next year and in 2018. The Bank of Japan also kept rates unchanged.

 

Telecom stocks were in the limelight as top players readied their war chest for the upcoming spectrum auction in October in a bid to fight competition from Reliance Jio’s aggressive strategy.

 

Seven operators have together paid about 150 billion rupees to take part in the auction. The auction will comprise frequencies across seven bands, including the most lucrative 700 Mhz band. At the base price, the government hopes to rake in 5.56 trillion rupees over 20 years.

 

Shares in the real estate and infrastructure space attracted buying interest on reports that regulator SEBI has tweaked norms to make investments in real estate and infrastructure investment trusts easier. Hotels and hospitals have also been included under the ambit of these trusts.

 

Axis Bank was the top loser among banks, down almost 7 percent on reports that the SUUTI is likely to sell its stake in the bank at a sharp discount.

 

The much awaited monetary policy committee of the RBI is in place, which includes three external experts. The panel will conduct its first monetary policy review on October 4 and will be closely watched by investors on how it functions and whether it will cut rates.

 

The cabinet approved merger of the railway budget with the union budget, paving the way for early completion of the budget cycle and enabling better planning and execution of schemes from the beginning of the financial year.

 

In another important development, the GST council has adopted a draft timetable on the rollout of the tax reform and has finalised the draft rules on how the council will function.

 

The next meeting on September 30 will take up the issue of exemptions, while tax rates will be decided at the next meeting on October 17-19. The ambitious project would move India significantly up on the ‘ease of doing business’ chart, but implementation will not be very smooth.

 

On the macro front, India’s current account deficit (CAD) in the April-June quarter narrowed to $300 million or 0.1 percent of GDP, much narrower than the $6.1 billion in the same quarter a year ago. The contraction was mainly attributed to a lower trade deficit.

 

In the coming week, markets will remain volatile ahead of derivative contracts expiry on Thursday. Post that, we could see sideways trade until the RBI meets on October 4.

 

Expectations have been built in for a rate cut as the monetary policy panel is in place and inflation is closer to the RBI’s comfort levels. Rate-sensitive stocks like banking, auto and real estate could be in focus. However, I expect the central bank to hold rates till the U.S. Fed’s decision in December.

 

We are witnessing a traders market supported by liquidity, and investors would do well to hold cash for a while longer. Markets have been making lower tops, and news-based gap-up openings are being sold into. This indicates that a correction is on the horizon. The best-case scenario is of a consolidation.

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India Markets Weekahead: Volatile days ahead http://blogs.reuters.com/india-expertzone/2016/09/18/india-markets-weekahead-volatile-days-ahead/ http://blogs.reuters.com/india-expertzone/2016/09/18/india-markets-weekahead-volatile-days-ahead/#comments Sun, 18 Sep 2016 06:27:24 +0000 http://blogs.reuters.com/india-expertzone/?p=5955 (Any opinions expressed here are those of the author and not of Thomson Reuters)

A volatile trading week left investors confused on the direction of markets, and the Nifty ended almost 1 percent lower at 8,780. FIIs were net sellers to the tune of $106 million during the week.

Talk of a devaluation of the rupee in a bid to boost exports impacted banking stocks trying to recover after an earlier correction. The weakness in the Indian currency also weighed on markets on Thursday as clarifications from the government did little to pacify investors.

Brokers trade on their computer terminals at a stock brokerage firm in Mumbai May 13, 2014. REUTERS/Danish Siddiqui/Files

Brokers trade on their computer terminals at a stock brokerage firm in Mumbai May 13, 2014. REUTERS/Danish Siddiqui/Files

Advance tax figures for the July-September period showed a substantial increase in tax payments by the oil majors. On the economic front, India’s trade deficit declined sharply in August by 38.1 percent.

CPI inflation for August fell to a five-month low of 5.05 percent from 6.07 percent in July, mainly on account of a decline in food prices, especially vegetables. WPI inflation rose to a 24-month high of 3.74 percent in August against 3.55 percent a month ago. IIP contracted 2.4 percent in July (vs 4.3 percent a year ago), pulled down by a sharp decline in capital goods.

Meanwhile, the cabinet gave its nod for the creation of the GST council, which will make recommendations to the centre and states on important issues related to the landmark tax reform. However, we could witness market jitters when rates are announced.

Yes Bank lost further ground and fell by 8.5 percent during the week on reports that SEBI is looking at discrepancies into its withdrawn QIP issue and after a prominent brokerage reduced its target price on the stock to half, implying that the run-up in the stock was bloated and valuations were stretched.

On the global front, the Bank of England unanimously voted to leave interest rates unchanged at a record low of 0.25 percent and hinted at a rate cut as soon as November if the UK economy weakens. It also voted to keep its bond-buying programme target at 435 billion pounds and said it would continue with its plan to buy up 10 billion pounds worth of corporate bonds.

In the U.S., retailers’ sales fell in August for the first time in five months, while industrial production contracted in August to -0.4 percent after expanding in the previous two months.

Vegetable vendors wait for customers at a market in Mumbai, India, July 12, 2016. REUTERS/Shailesh Andrade/Files

Vegetable vendors wait for customers at a market in Mumbai, India, July 12, 2016. REUTERS/Shailesh Andrade/Files

The much-anticipated U.S. Fed rate announcement is due on Wednesday. Markets have gyrated back-and-forth in the past few weeks due to speculation over what the Fed would do. With deteriorating macro data, the central bank is unlikely to raise interest rates.

However, its commentary would provide direction to global markets. The Bank of Japan will also come out with its monetary policy statement the same day, with investors divided on what steps Japan’s central bank will take. Nevertheless, it is going to be a highly volatile and eventful week for global equity markets.

Back home, shares of rate-sensitive sectors such as automobiles and banks are likely to see action as the Reserve Bank of India’s monetary policy draws closer. Some market watchers expect the central bank to cut interest rates in October because of lower-than-estimated inflation in August and an almost normal monsoon. However, I strongly feel the new RBI governor will await further data points.

Markets have discounted most of the recent positive news and bulls are hoping that adverse news flows don’t affect market sentiment further. In such a scenario, I would continue to advise booking profits at every opportunity. An intermediate correction will also signify a ‘lower top’ (downtrend), which means investors may not have a very cheerful Diwali. We could witness a new high only next year, that too subject to data points exhibiting visible and sustainable improvements.

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India Markets Weekahead: Book profits at every opportunity http://blogs.reuters.com/india-expertzone/2016/09/11/india-markets-weekahead-book-profits-at-every-opportunity/ http://blogs.reuters.com/india-expertzone/2016/09/11/india-markets-weekahead-book-profits-at-every-opportunity/#comments Sun, 11 Sep 2016 06:36:05 +0000 http://blogs.reuters.com/india-expertzone/?p=5947 (Any opinions expressed here are those of the author and not of Thomson Reuters)

A volatile week saw the Nifty surging on Tuesday after weak U.S. jobs data, with liquidity gushing in for the next two days followed by a correction on Friday after the ECB left policy rates unchanged. The decision gives room for the U.S. Fed to consider raising interest rates in the near term, which is likely to hit inflows to emerging markets like India. North Korea’s nuclear test also seemed to rattle sentiment. The Nifty finally closed at 8,866, up about 0.7 percent.

The rupee ended with marginal gains at 66.67 against the dollar after the greenback rebounded sharply on Friday post the ECB meeting. FIIs were net buyers to the tune of $311 million, with $209 million coming on Tuesday.

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in Mumbai, March 4, 2015. Indian shares fell on Wednesday, retreating from record highs hit earlier in the session, as the initial surge after an unexpected rate cut by the central bank was offset by profit-taking and on speculation foreign investors sold blue-chips. REUTERS/Shailesh Andrade (INDIA - Tags: BUSINESS) - RTR4S0O3

A broker laughs while speaking to a colleague, as they trade on their computer terminals at a stock brokerage firm in Mumbai, March 4, 2015. REUTERS/Shailesh Andrade/files

The IT sector remained in the limelight after TCS and Mindtree both issued profit warning for Q2 FY17, a historically strong quarter for the sector. Construction companies extended gains on reports that four public sector entities – NHAI, NTPC, NHPC, and IOC – are likely to release pending claims worth 393.66 billion rupees to construction companies.

Earlier, the government relaxed norms for payment of dues by public sector companies, asking them to release 75 percent of the arbitral award to construction companies in cases where the state-owned units have challenged the award.

The highlight of the week was Yes Bank shelving its up to $1 billion share sale to institutions. While the bank blamed trading volatility it said had been induced by misinterpretation of rules, its valuation also seemed stretched. On the other hand, Motherson Sumi could successfully complete a fairly priced QIP.

On the macro front, Nikkei India Services PMI rose to 54.7 in August, up from 51.9 in July, its biggest rise for over three-and-a-half years. The headline index has expanded in each of the past 14 months. With manufacturing growth also ticking higher, the seasonally adjusted Nikkei India Composite PMI Output Index climbed to a 42-month high of 54.6 in August from 52.4 in July, highlighting an improvement in private sector activity.

In the coming week, markets are expected to open gap down on weak global cues as the Dow ended lower by 400 points on Friday, its worst fall since the Brexit sell-off. U.S. government bonds weakened on Friday, sending yields to their highest levels since late June amid continued fallout from the ECB meeting and increased speculation that the Fed could raise interest rates this month. Fresh signs that central banks could be backing away from easy-money policies boosted the dollar.

A man looks at a screen displaying news of markets update inside the Bombay Stock Exchange (BSE) building in Mumbai, India, February 11, 2016. REUTERS/Danish Siddiqui/File Photo - RTX2OHWW

A man looks at a screen displaying news of markets update inside the Bombay Stock Exchange (BSE) building in Mumbai, India, February 11, 2016. REUTERS/Danish Siddiqui/File Photo

Back home, key macro data namely IIP and CPI inflation are scheduled to be released on Monday. CPI inflation is seen moderating in August to 5.3 percent from 6.07 percent a month earlier. IIP is likely to have slowed down to 1.4 percent in July from 2.1 percent in June. The progress of monsoon rains will be monitored as it is now 5 percent below the long period average (LPA).

Tata Steel and Coal India are the major companies that will report their earnings for the June quarter in the coming week. Telecom companies will be in focus on account of the ongoing tussle between Reliance Jio and incumbent mobile service operators represented by Cellular Operators Association of India (COAI).

On the global front, the Bank of England will announce its monetary policy decision on Thursday. It had cut bank rate by 25 bps to 0.25 percent and introduced a package of measures designed to provide additional monetary stimulus in its last meeting in August. In the U.S., data on industrial production and retail sales for August will be released on Thursday.

With speculation surrounding a Fed rate hike taking centre stage ahead of its meeting on September 21, the Nifty will find it difficult to cross the 9,000 mark for now. We could be back in the earlier trading zone of 8,600-8,800 until a clear direction is seen. I would continue to advise booking profits at every rise.

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India Markets Weekahead: Stocks may continue to rise http://blogs.reuters.com/india-expertzone/2016/09/04/india-markets-weekahead-stocks-may-continue-to-rise/ http://blogs.reuters.com/india-expertzone/2016/09/04/india-markets-weekahead-stocks-may-continue-to-rise/#comments Sun, 04 Sep 2016 06:33:59 +0000 http://blogs.reuters.com/india-expertzone/?p=5941 (Any opinions expressed here are those of the author and not of Thomson Reuters)

Markets led by large-caps conquered Nifty 8,800 levels after a gap of 18 months. Measures announced by the government to revive the construction sector boosted sentiment, while disappointing GDP numbers were shrugged off by investors as a revival in growth is seen on the back of a good monsoon and an expected boost in consumption due to a hike in the pay of current and former government employees.

Auto numbers for the month of August were largely in line with expectations, sending the BSE auto index surging by 5 percent for the week. However, sales of medium and heavy commercial vehicles were below expectations for the third month, declining 10 percent on a yearly basis. Passenger vehicles registered strong volume growth with Maruti Suzuki reporting a 12 percent growth.

People watch a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in Mumbai,  January 20, 2016. REUTERS/Shailesh Andrade/Files

People watch a large screen displaying India’s benchmark share index on the facade of the Bombay Stock Exchange (BSE) building in Mumbai, January 20, 2016. REUTERS/Shailesh Andrade/Files

Banking and infrastructure shares were in focus after the union cabinet cleared a proposal to release 75 percent of all arbitral dues to construction companies in government contracts. This move will help restart stalled projects as companies repay bank loans, thus ensuring fresh credit. It will also increase the ability of construction companies to bid for new contracts, thereby improving revenue visibility and reducing strained working capital cycle.

Additionally, it will ease the stress on the banking sector, where an estimated 700 billion rupees is tied up in arbitration with over 85 percent claims raised against government bodies still pending. The new norms will also allow faster recovery of loans by banks. Overall, it’s a huge positive for the infrastructure sector.

Reliance Industries Chairman Mukesh Ambani unveiled the much-anticipated Jio telecom service with aggressive data pricing and free voice calls. Shares of Bharti Airtel, Idea Cellular, Reliance Communications and Tata Communications collectively lost around 124.5 billion rupees in market capitalisation during the week.

The telecom sector is expected to continue to underperform as the incumbents will now try to match Jio’s aggressive pricing. Subscriber churn is expected in the coming months, impacting profits for all players. Concerns over a spectrum auction on October 1 will also weigh on the sector.

In the coming week, markets are initially expected to open with a gap-up, reacting to Friday’s U.S. nonfarm payroll data for August. Overall sentiment in India is expected to remain buoyant due to the government’s initiatives for a revival of the construction sector, robust automobile sales, a good monsoon and an expected consumption boost after implementation of the 7th Pay Commission.

A broker trades on his computer terminal at a stock brokerage firm in Mumbai, India, January 20, 2016. REUTERS/Shailesh Andrade/Files

A broker trades on his computer terminal at a stock brokerage firm in Mumbai, India, January 20, 2016. REUTERS/Shailesh Andrade/Files

However, September-end could witness some upheaval in the currency markets as FCNR deposits worth $24 billion will come up for redemption.

The current market rally has been driven by beaten-down sectors such as construction, infrastructure, metals, cement and PSU banks on the back of various government initiatives, while sectors which form the major part of the Nifty market capitalization – IT, FMCG, pharma, oil & gas and telecom sector – are underperforming.

Considering the current earnings momentum, a full-fledged corporate recovery is still a few quarters away. While the prevailing positive sentiment and gush of liquidity will possibly push markets higher, I would still recommend booking profits at every higher level and wait for a significant correction to re-enter.

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India Markets Weekahead: Wait for a correction http://blogs.reuters.com/india-expertzone/2016/08/28/india-markets-weekahead-wait-for-a-correction/ http://blogs.reuters.com/india-expertzone/2016/08/28/india-markets-weekahead-wait-for-a-correction/#comments Sun, 28 Aug 2016 06:28:39 +0000 http://blogs.reuters.com/india-expertzone/?p=5934 (Any opinions expressed here are those of the author and not of Thomson Reuters)

Markets remained sideways in the absence of any major trigger and the Nifty ended the week lower by 1 percent at 8,592. The index failed to breach the 8,700-8,750 band yet again as caution prevailed ahead of a speech by Fed Chair Janet Yellen, who told a global monetary policy conference after Indian markets closed on Friday that the case for a rate increase in the U.S. had grown stronger.

The government’s choice of Urjit Patel the next RBI governor suggests there will be a continuity of the policies laid down by his predecessor. While tackling inflation and a clean-up of banks’ bad loans would continue to be the priority, one of the first tasks for the new governor would be to ensure that there is no disruption in redemption of FCNR (B) deposits which will start maturing in September.

Meanwhile, the weather department said cumulative rainfall has so far been 3 percent below the long period average (LPA). But this will not have a major effect on sentiment unless rainfall reduces drastically in the next few weeks as the benefits of a good monsoon have already been availed.

In company-specific news, Tata Motors’ June quarter numbers were better than expected due to improvement in JLR’s business. Welspun India was on the radar of investors and analysts after its second largest customer, Target Corp cancelled its contract after alleging that Welspun passed off cheap sheets as Egyptian cotton. The Indian textile manufacturer’s stock fell more than 50 percent during the week. Meanwhile, Mandhana Industries bounced back after signing a new agreement with Salman Khan’s foundation Being Human. GMR Infrastructure’s shares could see action in the coming week as the company won a contract to construct Goa’s second airport at Mopa on a BOOT (Build, Own, Operate, Transfer) basis.

The RBI made a spate of announcements related to the banking sector ahead of Governor Raghuram Rajan’s departure. The reforms based on the HR Khan Committee report will help increase participation and liquidity in the corporate debt market. The central bank also allowed banks to sell masala bonds, and issued stringent draft norms on large exposure of banks to standalone and group entities in its efforts to reduce corporate dependence on bank finance.

The week also saw the launch of a new payment system in India called Unified Payments Interface (UPI) that allows money transfer between any two bank accounts through a smartphone application without the need for bank account numbers.

Speaking at an annual economic symposium in Jackson Hole, Fed chief Janet Yellen signalled growing conviction that the central bank will raise short-term interest rates. She, however, indicated that rates will remain lower in the long run. Thus, a possible hawkish near-term rate outlook is offset with a more pleasant long-term outlook.A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai

In the coming week, global macro data to watch out for include U.S. ADP non-farm employment change data for August and pending home sales data in the U.S. for July, which will both be unveiled on Wednesday. U.S. non-farm payrolls data and U.S. unemployment rate data for August will be unveiled on Friday. These data sets are important for Fed rate decisions. China Manufacturing PMI data for August will be unveiled on Wednesday.

On Monday, markets are initially expected to react to the U.S. Fed chief’s speech. Later, stocks will take cues from India’s GDP data for April-June, due to be released on Wednesday. Markit Economics will announce its India Manufacturing PMI for August on Thursday. On the corporate front, DLF, MOIL and BPCL are the frontline companies which will announce their results in the coming week.

Stock markets are showing signs of exhaustion as there are no major domestic or international triggers ahead. The Nifty 8,550 is a good support level, below which we could witness nervous selling by traders who have been holding on till date on expectation of a ‘buy on decline’ sentiment. I expect a healthy correction to levels of Nifty 8,200-8,250, which should be a good re-entry point.

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