September 16, 2018 / 6:46 AM / a year ago

India Markets Weekahead: Don’t mind the volatility

Markets had a roller-coaster ride to extend their losses for a second week. Stocks fell sharply in the initial part of the week after the rupee hit a fresh low of 72.9 against the dollar.

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, February 26, 2016. REUTERS/Shailesh Andrade/Files

Negative global market cues and worries of India’s high current account deficit also impacted sentiment. However, reports that the prime minister was likely to hold a meeting over the weekend to review the state of the economy helped the Nifty claw its way back above 11,500 levels.

Fresh trade talks between the United States and China also supported global sentiment.

The Nifty ended the week lower by 0.6 percent to 11,515. On the sectoral front, the auto index declined 2 percent, while FMCG index and Bank Nifty were down 1.1 percent.

The mid-cap and small-cap indices fell by 0.9 percent and 1.7 percent respectively.

Gold prices ended in the green, thanks to dismal U.S. consumer data which boosted investors’ appetite for greenback-denominated commodities. Crude oil closed the week on a steady to negative note, with tight supply countering worries over growth in emerging markets and trade disputes.

Back home, Moody’s said the rupee’s depreciation may be credit negative for companies having dollar-based debt, resulting in markets reacting negatively in the early part of the week.

The impact of the rupee’s fall will be diverse and will depend on issues such as a company’s reliance on exports, its cost base and exposure to pricing on international markets. The Indian currency closed at 71.85 per dollar.

Finance Minister Arun Jaitley on Friday tried to pacify investors by announcing measures to control the current account deficit and fight the rupee’s volatility.

In an effort to encourage capital flows against the backdrop of a widening CAD, the government announced that it will focus on a five-point plan which includes scrapping of withholding tax on masala bonds, easing ECB access, removal of exposure limit for foreign portfolio investors’ corporate bond portfolio and measures to cut down “non-necessary” imports.

The Supreme Court granted interim relief to stressed power firms by directing lenders to maintain status quo on the RBI’s circular for banks to resolve these cases within 180 days.

Sugar stocks rallied after the Cabinet Committee on Economic Affairs raised the procurement price of ethanol derived from 100 percent sugarcane juice to 59.13 rupees per litre from the current rate of 47.13 rupees.

The move will help sugar mills quickly release arrears to cane farmers, which stands at over 130 billion rupees. Shares of fertilizer companies including United Phosphorous Limited rose after the government reiterated its commitment to increase farm income.

Following the strong listing of RITES Limited and Mishra Dhatu Nigam, investors will have high hopes from IRCON International’s upcoming IPO, which opens on September 17.

The stock is priced at 470-475 rupees per share. IRCON offers EPC services on a fixed-sum turnkey basis as well as on an item-rate basis and specializes in infrastructure projects.

On the macro-economic data front, IIP growth fell to 6.6 percent in the month of July as compared to a revised 6.9 percent in June.

Meanwhile, retail inflation fell to 3.69 percent in August, the lowest in 10 months, driven mostly by declining food and beverages component.

Wholesale inflation eased to 4.53 percent in August from 5.09 percent the previous month. India’s trade deficit narrowed to $17.39 billion in August on rising exports and a fall in crude oil imports.

Gardeners work outside the National Stock Exchange (NSE) building in Mumbai, August 16, 2018. REUTERS/Francis Mascarenhas/Files

For the coming week, stocks are expected to react to measures taken by the government on the economic situation. The currency movement and global reactions to U.S.-China trade talks will continue to be monitored.

Reports indicate that Donald Trump is expected to proceed with new tariffs on about $200 billion of Chinese products.

Markets seem to be back on track after discounting a week rupee and rising oil prices. Investors should continue to hold their positions despite the volatility as most of the negatives are getting price in.

About the Author

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.

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