REUTERS - The Nifty closed about a percent lower at 9,588 on profit booking, snapping its five-week winning streak. The index traded flat and sideways the entire week with banking shares in focus after the government initiated talks for consolidation of PSU lenders.

Oil prices dropped after U.S. government data showed a smaller-than-expected weekly decline in domestic supplies and an increase in gasoline stockpiles and crude production. OPEC, meanwhile, reported ramped-up supplies from Libya and Nigeria.

Global central bank policy action dominated the headlines during the week. The U.S. Fed raised rates and said it could start unwinding its stimulus relatively soon if the economy performs as expected. A hawkish Bank of England left rates unchanged

In sector-specific action, the banking space was buzzing after the RBI said banks must start bankruptcy proceedings against 12 major defaulters.

Simultaneously, the government initiated talks for consolidation of state lenders and has picked big players including Punjab National Bank, Bank of Baroda, Bank of India and Canara Bank as possible acquirers. 

Stressed assets now constitute 17 percent of all loans, according to an estimate by rating agency Moody’s.  

The Maharashtra government announced a farm loan waiver for marginal farmers, which is expected to cost 300 billion rupees, raising fears that demand for waivers could become contagious.

According to a study by ratings agency CARE, Maharashtra is the only state with the fiscal capacity to pay for a farm loan waiver without breaching its fiscal responsibility commitments. 

Pharma stocks were also in focus on reports that U.S. President Donald Trump’s administration is preparing an executive order aimed at lowering U.S. drug costs, a move which could further create pricing pressure and hurt Indian companies.

Textile companies also remained in the news on reports that a new textile policy may be finalised in the next three months.

Reliance Industries was also in the limelight as there was an expectation of a big announcement with BP, especially after the oil minister in a tweet requested the conglomerate to set up a fuel distribution network.

However, other than a tie-up on gas exploration, there was no specific announcement to worry OMCs.

Both retail and wholesale inflation have surprised on the lower side, leading to chatter about a possible rate cut by the RBI in August.

However, with the government expected to discuss increasing HRA allowances for central government employees as proposed by the 7th Pay Commission, the central bank could wait for the impact of any HRA increase on inflation before taking a call.

In the coming week, a lack of domestic triggers mean investors will look for global cues for direction and we can expect stocks to remain flat.

With the rollout of India’s biggest tax reform since independence just two weeks away, I would advise investors to wait and watch as the launch of the Goods and Services Tax (GST) could trigger an overdue correction in markets. 

 

(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.)