Markets moved in a narrow band in a week dominated by news of the no-confidence motion against the Modi government. Investors opted for a cautious approach after the Lok Sabha speaker accepted a no-confidence motion by the Telugu Desam Party against the ruling NDA coalition, although the risk of toppling the government was low.
A sharp recovery in the rupee from a record low supported domestic sentiment to an extent. The Nifty ended at 11,010, up nine points. The broader markets continued to underperform with mid-cap and small-cap indexes losing 1.5 percent and 2.9 percent.
The rupee weakened sharply to 69.12 as the dollar surged to an over one-year high after Federal Reserve Chairman Jerome Powell hinted at more rate hikes this year. However, it recovered sharply to close at 68.84 per dollar on Friday.
Oil prices moderated to $68 a barrel, after the re-opening of Libyan exports and traders eyeing potential supply increases by Russia and other producers. Adding to this, U.S. Treasury Secretary Steve Mnuchin said some crude importers may receive waivers to continue buying supplies from Iran, despite U.S. sanctions on the Middle Eastern country.
The highlight of the week was the monsoon session of parliament. The no-confidence motion gave Prime Minister Narendra Modi an opportunity to showcase his point of view amidst theatrics by the opposition. He spoke on issues such as domestic politics, rising NPAs, farm distress, GST and mob violence. The government crushed the opposition’s no-confidence motion with 325 members voting in favour of the government and 126 for the motion.
The Lok Sabha passed the Fugitive Economic Offenders Bill 2018 with a majority supporting it. The bill will empower authorities to attach and confiscate the properties and assets of economic offenders like loan defaulters who flee the country.
The road transport ministry has notified an increase in truck axle load by 10-25 percent across various categories. The markets feared this would result in an increase in system capacity and lower demand for new trucks, affecting manufacturers like Ashok Leyland. The notification was sentimentally negative but practically speaking overloading has been a practice in the trucking business - it’s now got an official stamp, thus eliminating penalties and fines for truckers.
Textile stocks were in focus after the government raised import tax on 45 products to protect domestic industry from cheap imports and to boost exports of apparel.
The move, in line with ‘Make in India’ initiative, comes as India continues to lose its garment manufacturing business to China, Bangladesh, and Vietnam. India’s garments exports have been falling since the implementation of GST as the input cost has gone up. In the first quarter, garments exports fell by 17 percent to $1.34 billion.
Sugar stocks were also in focus after the government increased the minimum price sugar mills pay to cane growers by 20 rupees to 275 rupees per quintal for the next marketing year starting October. However, the reduction of GST on ethanol to 5 percent should come as a relief.
Multiplex chains PVR, Inox Leisure remained in the limelight after Hyderabad multiplexes instructed cinemas to sell packaged food at MRP.
The results season has picked up and several prominent results were out during the week. Among the good ones were Ceat, Ashok Leyland and UltraTech Cement. Key companies reporting below-estimated numbers included Bajaj Auto, Kotak Bank and Infosys.
Bajaj Auto specifically reacted sharply (down 9 percent) after the dismal numbers. Wipro, Bajaj Finance, Bajaj Finserv, Zee Entertainment and Hindustan Unilever reported numbers in line with expectations.
On the macro front, WPI inflation stood at 5.77 percent for June as compared to 4.43 percent the previous month. The IMF cut India’s growth forecast by 10 bps to 7.3 percent for 2018 and by 30 bps to 7.5 percent for 2019, citing faster-than-anticipated monetary tightening and higher crude prices.
U.S. President Donald Trump’s comments on Friday that he was poised to impose tariffs on $500 billion of goods from China threatened to escalate the current trade clash. This could see some impact on global indexes on Monday.
Trump lashed out at China and the European Union for their weak currencies and said a stronger dollar and rising interest rates are undermining America’s “competitive edge”, targeting the Federal Reserve yet again.
In India, the GST council announced a reduction in GST for a host of items from white goods to construction items, notable among them sanitary pads, washing machines, television sets, paint, footwear, handloom items, etc. This should improve domestic sentiments in the coming week.
For the coming week, the monsoon session of parliament and quarterly earnings from key corporates will dictate trends for the market. Volatility will continue ahead of derivative contract expiry on Thursday. The GST beneficiaries would be in limelight. However, it could be a tussle between global sentiment and domestic triggers.
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.