Markets ended in the red for the fourth consecutive week led by a sharp correction in financial services. Sentiment remained cautious after the government raised import tariffs on select goods and the RBI announced measures to ease liquidity concerns.
The Nifty ended the week lower by 1.9 percent to close at 10,930. The mid-cap and small-cap indices underperformed again, falling 5 percent and 8 percent, respectively. High beta stocks such as DHFL, Yes Bank and Infibeam continued to crack and fell 21 percent, 19 percent, and 68 percent, respectively.
Despite the recent panic in wholesale funding, the rupee has been able to trade below 73 against the dollar, helped by RBI interventions. Crude oil prices closed on a positive note for the third straight week, with Brent touching a fresh four-year high of more than $83 a barrel after the OPEC refused to increase crude production.
On the global front, trade talks between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe led to the two countries agreeing to start talks on a free trade agreement.
Back home, on the stock specific front, NBFCs remained in focus, with the recent IL&FS default and outflows from debt mutual funds triggering fears of a potential liquidity crisis in money markets. Yes Bank extended its fall and is now down 50 percent since last month.
Sugar stocks were also in focus after the government approved a 45 billion rupee package to the sugar industry. This is the second financial package for the sector, following the 85 billion rupee package announced in June.
With record production of 32 MT in the 2017-18 marketing year (October-September), the industry is facing a glut-like situation. The government wants to address the issue of payments to cane growers ahead of assembly polls and the general election.
After announcing measures to attract capital flows, the government has now raised import duty on 19 items including air conditioners and washing machines (imports valued at 860 billion rupees in FY18) to address the country’s widening current account deficit and weakening currency.
These measures on standalone basis are unlikely to have any material impact as of now. However, if the RBI raises rates in its upcoming meeting, the rupee depreciation could be contained.
On the macro front, the government announced a massive 700 billion rupee cut in its planned market borrowing programme in an attempt to ease liquidity concerns.
The economic affairs secretary said the government’s fiscal maths are very much in order and was confident of ending the financial year with the targeted fiscal deficit of 3.3 percent of GDP.
Market volatility will continue as companies start reporting their September-quarter earnings in the coming days. Foreign portfolio investors sold 75 billion rupees in stocks in September, which were soaked up by domestic institutional investors.
In the coming week, investors will focus on the RBI’s policy review on October 5, where it is likely to raise the repo rate by 25 bps. The rate hike would reflect growing upside risks to medium-term inflation, even though CPI inflation in expected to remain soft in the shorter term.
Automobile sales numbers for September will be out on Monday, and we could see a slowdown in some segments due to higher insurance premium and higher fuel prices.
On the macro front, manufacturing PMI for September will be announced on Monday and Nikkei Services PMI for September will be announced on Thursday.
Whenever there is panic in the markets like the one we just witnessed, it’s best to just sit back and wait out the storm. It’s also important to note that the purchasing power of cash in the portfolio rises. During such times, it’s prudent to hold our cash till sanity returns.
Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.
The views expressed in this article are not those of Reuters News.