Markets extended their winning streak to a fifth consecutive week as benchmark indexes again hit life highs. The Nifty ended up 0.75 percent at 11,557 while the mid-cap index outperformed and was up 1.5 percent.
However, market sentiment was fragile towards the fag end of the week as crucial two-day talks between U.S. and Chinese officials hit a roadblock. This along with a weakening rupee, firmness in crude oil prices and lack of strong domestic cues led to profit-booking. On the sectoral front, the pharma index was in good health again, rising 4 percent for the week.
The rupee continued its slide against the dollar and fell below the 70 mark again due to renewed worries of a hike in Federal Reserve rates amid global trade war jitters. Oil prices rose, hitting a three-week high, after U.S. government data showed a larger-than-expected draw in crude inventories.
On the global front, the U.S. Federal Reserve meeting minutes indicated it may raise rates further this year and next if the economy stays on track, even as it flagged “ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks”. The Fed has raised rates twice this year and is widely expected to tighten policy again next month.
Trump’s criticism of the Federal Reserve, Europe and China was on the investors’ minds this week. The U.S. president expressed disappointment with the pace of rate hikes. He also claimed that China and the European Union rigged their respective currencies. Trump has now threatened to impose tariffs on South African goods.
U.S. and Chinese officials met for the first time in over two months to find a way out of their deepening trade conflict, but the talks were not as effective as expected. A fresh wave of global risk-aversion trade, triggered by the implementation of new tariffs by the world’s two largest economies, revived fears of a full-blown trade war.
Meanwhile, the Indian economy is expected to grow by around 7.5 percent in 2018 and 2019, according to Moody’s Investors Service. The growth is being supported by strong urban and rural demand and improved industrial activity.
In stock-specific action, Reliance Industries remained on top as it became the first Indian company to cross 8 trillion rupees in market capitalisation. The market capitalisation of the company has doubled since the launch of Reliance Jio, which has disrupted the Indian telecom industry.
L&T surged post its very first buyback announcement of 90 billion rupees. The company will repurchase 60 million shares (or 4.3 percent of equity) at 1,500 rupees a share. The share buyback is a positive move by the company since they were able to unlock money from subsidiaries.
Aviation stocks, especially Jet Airways, traded weak. The company has been in the limelight after reports emerged that the airline is grappling with financial woes and has been looking at ways to reduce costs amid high oil prices and intense competition. The company will declare its long-delayed June quarter results on Monday, which could result in volatility. There seems to expectation of a huge loss, but management commentary on how they plan to tackle the situation will be more important.
Sugar stocks rallied on expectations the deadline will be extended for sugar mills’ export obligation. The festive season too buoyed the mood as sugar prices have a tendency to harden as demand peaks in that season.
On the macro front globally, U.S. initial jobless claims fell slightly last week and hovered near a 49-year low. Inflation in Japan rose 0.8 percent in July from a year earlier, matching the previous month’s gain, remaining below the Bank of Japan’s 2 percent goal.
For the coming week, Indian markets are expected to be volatile ahead of derivative contract expiry on Thursday. In the absence of domestic cues, markets will look for global cues for further direction.
On the macro front, the government will announce data on second-quarter GDP on Friday. The Indian economy expanded 7.7 percent in the first quarter, higher than a downwardly revised 7 percent in the previous quarter. U.S. second-quarter GDP data and Japan’s consumer confidence data for August will be unveiled on Wednesday.
The recovery in mid-caps and small-caps has been selective over the last few weeks, but it is expected to get broad-based over the next month or two. Investors should continue to hold their positions and book opportunistic profits.
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.