REUTERS - Some of the most awaited events of month took place in the past week but they failed to meaningfully sway the stock markets. The RBI maintained status quo as expected while the UK election threw up an unexpected outcome. The main indexes ended flat as a result.
A dramatic general election in Britain resulted in voters stripping the ruling Conservatives of their parliamentary majority. Prime Minister Theresa May managed to secure a deal on Saturday to prop up her minority government, tentatively pacifying concerns over the immediate future of UK politics and the looming start of Brexit negotiations with the European Union.
In the U.S., the testimony of former FBI Director James Comey regarding his interactions with President Donald Trump failed to provide any new or substantive information. U.S. markets shrugged off the event and the Dow touched new record highs.
In India, the RBI kept its key repo rate unchanged at 6.25 percent and lowered its inflation forecast. The Monetary Policy Committee also revised downwards the FY18 GVA growth rate by 10 bps to 7.3 percent. The relatively dovish stance renews the possibility of rate cuts in future.
Meanwhile, Fitch ratings said Indian banks' exposure to troubled telecom companies is not large enough to pose a systemic threat, but defaults could add to problems at banks with weak balance sheets.
Total debt owed by telcos to banks stands at 913 billion rupees, accounting for just 1.4 percent of all bank loans. However, the rollout of 5G in the next 2-3 years may further add to their woes.
Infosys was buzzing with action on media reports that co-founder Narayana Murthy and other promoters are exploring a sale of their entire 12.75 percent stake in the company worth about 280 billion rupees.
The move is said to have been triggered by their unhappiness over how the company is being managed since their exit three years ago. Murthy denied any plans to sell his stake but the company’s stocks corrected sharply.
ONGC was also in the limelight on reports that it may buy the government’s entire stake in HPCL, in line with the oil ministry’s proposal of creating a domestic oil giant. The acquisition is likely to make ONGC a much more integrated player with presence in the downstream segment.
In other stock- and sector-specific news, IRDA has denied permission to the proposed merger of Max Life and HDFC Standard Life.
SBI successfully raised 150 billion rupees by selling 522 million shares through QIP, which is India’s largest till date. PSU banks’ stocks were in focus after reports that the government was examining the possibility of further consolidation in the space without waiting for their finances to improve.
On the macro front, the Nikkei India Services PMI rose to 52.2 in May from 50.2 in April, which was the fastest increase in four months. The state weather department has upgraded its monsoon forecast to 98 percent of its long term average from an earlier 96 percent, a huge boost to India’s rain-dependent economy.
Globally, the ECB left interest rates unchanged and continued to expect interest rates “to remain at present levels for an extended period of time, and well past the horizon” of its asset-buying programme, which is set to run at least through December.
The U.S. non-farm payrolls data was lower than expected, suggesting that the labour market was losing momentum.
In the coming week, India’s IIP data for April along with CPI data for May is expected to be announced on Monday. WPI data for May is expected to be released on Wednesday.
Globally, investors will react to the fallout from the UK election and the ongoing Trump-Comey saga in the U.S.
On the macro data front, China's IIP data for May and Japan and the euro zone's IIP data for April will be released Wednesday.
The U.S. Fed will also make its highly anticipated rate decision on Wednesday. Markets are expecting a rate hike despite a weaker-than-expected jobs report a few days back.
The big reform rollout of the goods and services tax (GST) is about three weeks away. Though murmurs of possible disruptions due to a new tax regime are getting louder, stock investors are yet to take cognizance of the same.
However, markets seem to be getting tired at the present levels and are failing to gain momentum. This puts a question on how stocks will behave the moment we get negative new flows. With the GST implementation on the horizon, it would be prudent to maintain liquidity and wait for the upcoming disruption-led correction in markets to accumulate at lower levels.
(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.)