REUTERS - The Nifty closed the week above the 10,000 mark in spite of heavy selling by foreign institutional investors (FIIs) and ongoing geopolitical tensions. IPOs continued to hog the limelight and saw a good response.
Oil marketing companies were under pressure during the week after reports suggested that government may ask them to further absorb an increase in oil prices. Petroleum and Natural Gas Minister Dharmendra Pradhan has denied any interference in the set mechanism.
On the geopolitical front, North Korea fired a ballistic missile across Japan, creating new tensions in the region after its nuclear bomb test less than two weeks ago.
U.S. President Donald Trump and his top national security advisers said Friday there are military options available for dealing with the crisis. The London commuter train blast was also in focus.
Crude oil prices had their biggest weekly gain since late July as Texas refineries recovering from Hurricane Harvey processed more crude and global demand forecasts brightened.
Futures rose 5 percent, just below the $50 mark. A number of fundamental factors are helping support oil prices, mainly stronger demand and ongoing supply restrictions from the OPEC and Russia.
The week’s most talked-about event was the launch of an ambitious bullet train project by PM Narendra Modi and his Japanese counterpart Shinzo Abe in Ahmedabad.
The project is expected to start operations in 2023 with 81 percent cost funding from Japan.
Capital goods, power and metal stocks saw some action with BHEL in the spotlight after the Japanese PM said the company would partner Kawasaki Heavy Industries Ltd for rolling stock.
Meanwhile, reports said restrictions on H-1B visas had been reviewed by the U.S. administration, allaying recent fears. However, the IT sector continues to languish as order flows slowed down and an unfavourable currency movement came as a double whammy.
Pharma stocks gained on bargain hunting and the healthcare index was the top sectoral gainer. Prominent gainers were Divis labs (up 23 percent) and Sun Pharma (up 11 percent). The worst seems over for the pharma sector, although a major recovery is still some time away.
On the macro front, headline CPI inflation rose to a four-month high of 3.4 percent in August from 2.4 percent in July. This is mainly due to food inflation turning positive after three months of contraction.
However, at 3.4 percent, CPI remains below the RBI monetary policy committee’s target of 4 percent for the tenth consecutive month. Still, the renewed upward trajectory should be worrying.
WPI stood at 3.24 percent for August, compared with 1.88 percent (provisional) in July and 1.09 percent in August 2016. The rise in inflation in July was on expected lines, but the increase in August inflation was alarming as it has been driven by higher core inflation.
The monetary policy review in October would be less likely to cut rates given weak first-quarter GDP growth along with IIP and PMI data recently.
IIP for July expanded by a modest 1.2 percent after contracting 0.17 percent in June due to restocking by companies following the Goods and Services Tax (GST) rollout and a marginal uptick in the core sector.
The current account deficit increased to $14.3 billion, or 2.4 percent of GDP, in the first quarter of the current fiscal from $0.4 billion a year ago as gold imports picked up ahead of GST implementation from July 1.
India’s forex reserves rose past $400 billion for the first time -- at about $376 billion excluding gold, they are enough to pay for about a year of imports.
On the GST front, after claiming record receipts of 950 billion rupees, the government was in for a rude shock with a 650 billion rupee refund claim. There will now be scrutiny of all refunds exceeding 10 million rupees.
This will also mean a liquidity crunch for corporates till refunds are processed. The government has accepted the glitches in the GST system and has given Infosys, the service provider, a month to fix them.
Globally, the U.S. Federal Open Market Committee’s (FOMC) eagerly awaited meet will begin on Sept. 19. Though the Federal Reserve is expected maintain status quo, the tone in its FOMC statement will play a major role in setting expectations for interest rates along with the direction on balance sheet reduction plans going forward.
The Indian market continues to exhibit strength based on liquidity flows with hopes that corporate performance will show an uptick in the new calendar year. Corporate performance has been a moving goal post for a long time and marketmen are willingly playing along as long as the index inches up.
Markets have even discounted Kim Jong Un of North Korea as a “crying wolf”, but we are not prepared for the real wolf. Neither Kim nor Trump can afford to blink and the tussle can put global markets in a quandary.
(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.)