by admin | May 25, 2021 | Economy, Markets, News
By Rohit Vaid,
Mumbai : Second-quarter earnings result season, combined with the direction of foreign fund flows and the liquidity situation of the NBFC (non-banking financial companies) sector are expected to determine the trajectory of Indian stock market indices during the upcoming week.
In addition, the price of global crude oil and the rupee-US dollar matrix will also be other major market themes during the period.
“Markets next week would again focus on the developments in the liquidity situation of the NBFCs, HFCs (housing finance companies),” Devendra Nevgi, Founder and Principal Partner, Delta Global Partners, told IANS.
The liquidity availability to the sector has become a concern after the default by some of the IL&FS Group companies.
Last Friday, the Reserve Bank of India (RBI) came out with new measures to increase the liquidity flow to NBFCs and HFCs.
“The ongoing turmoil led by a financial crunch in the domestic economy, global risk-off and worries over upcoming elections are likely to maintain their burden in the equity market,” said Vinod Nair, Head of Research at Geojit Financial Services.
“At the same time, it is possible that a good portion of these risk factors have been digested by the market and the upcoming impacts will depend on developments like stability in global bond yield and the trade war.”
In terms of quarterly results, companies like Adani Ports, Ambuja Cements, TVS Motor, Bajaj Auto, Wipro, Bharti Airtel, Biocon, Maruti Suzuki, Yes Bank, Dr Reddys Labs, ICICI Bank and ITC are expected to announce their Q2 earnings next week.
“The sentiment would be driven by the moves in the NBFC and HFC stocks and earnings of Asian Paints, Bajaj Group of companies, Bharti Airtel, etc., which are due next week,” Nevgi said.
Apart from the Q2 results, the direction of flow of foreign funds assumes significance as outflows from the beginning of October have crossed the highest level in the last 12 months.
As per data complied from the stock exchanges, in just 13 trading sessions from October 1 onwards, foreign investors have sold stocks worth around Rs 19,500 crore.
The weekly provisional figures showed that foreign institutional investors (FIIs) sold scrips worth Rs 1,576.01 crore.
Besides, the rupee’s strength against the US dollar and global crude oil prices will be closely followed by investors.
In the previous week, a decline in crude oil prices to below $80 per barrel and a stable rupee in a range of 73 to a US dollar helped buoy investor sentiments.
The Indian rupee last week closed at Rs 73.32 to a dollar, strengthening by 24 paise from its previous week’s close of 73.56.
“Lower oil prices and weakness in the US Dollar Index can offset the weakness in local stocks and keep the rupee in a range for the next week,” Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
“… We can expect range-bound trading in the pair for the next week — between 73 and 74 levels on spot.”
On the technical charts, the National Stock Exchange (NSE) Nifty50 remains in an intermediate downtrend.
“Technically, with the Nifty again displaying weakness after the pullback rally seen in the previous week, the intermediate trend of the index remains down,” HDFC Securities’ Retail Research Head Deepak Jasani told IANS.
“The downtrend is likely to continue early next week once the immediate support of 10,250 points is broken. Crucial resistances to watch on the upside are at 10,436-10,526 points.”
Last week, mixed corporate earnings and fears of a slowdown in global economic growth, pulled the two main indices of the Indian stock market lower.
Consequently, on a weekly basis, the S&P Bombay Stock Exchange (BSE) Sensex closed at 34,315.63 points, down by 417.95 points or 1.20 per cent from its previous close.
Similarly, the wider Nifty50 of the NSE edged-lower. It closed at 10,303.55 points, down 168.95 points or 1.61 per cent from the previous week’s close.
(Rohit Vaid can be contacted at rohit.v@ians.in )
—IANS
by admin | May 25, 2021 | Opinions
Uday Kotak
By Amit Kapoor,
Last week, Uday Kotak of Kotak Mahindra Bank had a warning about the stock markets entering a possible bubble. According to him, Indians are investing massive amounts of savings into “a few hundred stocks” of firms whose governance standards are questionable. The Bombay Stock Exchange (BSE) Sensex rose almost 28 percent in 2017 and the rally has continued in the new year. It is trading at prices that are over 26 times their underlying average earning per share. Even Uday Kotaks warning was not enough to break the general market trend (although mid-caps did face a correction soon after the red flag was raised, but other sectors more than compensated for it).
To put things in perspective, it must be pointed out that Reserve Bank of India (RBI) data shows that the pattern of household savings has drastically changed over the last year. In the decade-and-a-half between 2000-01 and 2015-16, household investment in shares averaged around Rs 226 billion and peaked at Rs 743 billion just before the crisis in 2007-08. However, in 2016-17, it jumped to a historical high of Rs 1,825 billion.
Demonetisation can be said to be the immediate trigger. Since holding cash is now seen as a risk, households have been looking at new avenues of parking their money. Even bank deposits have witnessed an abrupt jump over the last financial year. After gradually rising from Rs 1,000 billion to Rs 6,220 billion between 2000-01 and 2015-16, bank deposits almost reached Rs 11,000 billion in 2016-17.
So, the bottom line is that the average Indian saver is getting more and more invested into the stock market and so any significant downturns will have far-reaching implications. Therefore, Uday Kotak’s warnings need serious consideration and even more so because there are multiple global factors that can put an end to the bull markets.
First, the global economy began witnessing its first signs of recovery last year after the 2008 financial crisis. As a response to the crisis, central banks all over the world had began a policy of quantitative easing that pumped excess liquidity into global markets. The gains from this policy are debatable but the money found its way into financial assets and bloated their prices. Therefore, despite a lack of positive economic news and unexpected political changes throughout the world, equity markets continued to show an upward trend.
However, as economies continue to show signs of revival the quantitative easing policies will slowly come to an end and excess liquidity will be rolled back by central banks. The US Federal Reserve is already doing so, and other major economies will soon follow suit. This money will be withdrawn from the global equity markets which will, therefore, face an inevitable correction.
Second, the flip side of a change in liquidity is the interest rate level. In pursuit of the policy of quantitative easing, central banks in the advanced economies have reduced interest rates to rock bottom levels with Japan even going into sub-zero levels. However, as the liquidity taps are closed, interest rates will be raised to pre-crisis levels. If there are no recessionary signals this year, the US might raise interest rates three times to about 2 percent. This will be another strong reason for money to flow out of global equity markets into the safer havens of US bonds. Such trends will not be good news for investors in the Indian stock market.
Third, there are fears that the American dollar might become weak as China has indicated an inclination towards curtailing its purchases of US government bonds. Since China is the single-biggest foreign holder of US debt, a slowdown in its purchases would imply higher bond yields and a weaker dollar. This would result in a flight of capital to safety out of world markets, including that of India.
Finally, crude oil prices are expected to be high this year with the unrest in the Middle East. Prices are already above $60 a barrel and will continue its upward trend as the oil cartel tightens the market supply and US output of shale oil slows. Since oil prices are the leading drivers of inflation in the world, and especially in India, interest rates will also have to be raised commensurately. These two factors — inflation and rising interest rates — are highly inimical to company earnings and, hence, will have a significant negative impact on the markets.
There are numerous global factors that are poised to bring an end to the bull run in the stock markets and considering the fact that, historically, high levels of household savings have been invested in it, a forewarning is due so that investors are not caught unawares and overexposed. It is better to form bear market plans now when investors have ample time and a clear head.
(Amit Kapoor is chair, Institute for Competitiveness, India. He can be contacted at amit.kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, researcher at Institute for Competitiveness has contributed to the article.)
—IANS
by admin | May 25, 2021 | Business, Economy, News
Bombay Stock Exchange
By Rohit Vaid
Mumbai:(IANS) Hopes of more reforms, coupled with lower commodity prices and rising consumer confidence, are expected to aid key Indian indices in 2016 to pare their losses in the year gone by.
“The year 2016 is broadly expected to deliver positive returns; for this it is important for markets to have some momentum in reforms, private capex cycle, global stability and growth,” Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
According to Nevgi, other factors such as improvement in bank NPA’s and a rise in corporate earnings will buoy the Indian equity markets in the year ahead.
Vaibhav Agarwal, vice president and research head at Angel Broking, predicted that earnings’ growth will pick up from the second half of the year and drive the rally forward.
“Investor interest continues to remain strong as favourable macro cues such as low inflation, declining interest rates, cheap global commodities and strong governance are likely to drive improvement in corporate performance over the coming years,” Agarwal elaborated.
Other market observers pointed out that India will continue attracting foreign funds over the long term, even as other emerging markets (EMs) like China, Brazil and Russia continue to grapple with a slowdown.
“India is in a sweet spot as compared to other emerging markets given its strong fundamentals, expected improvement in economic growth, lower inflation and cut in interest rates. For these reasons, we expect FIIs’ (foreign institutional investors) interest to return to the equity markets,” said Nitasha Shankar, vice president for research with YES Securities.
“However, trends in 2016 would also depend on geopolitical events both within India (related to reform announcements) and on the global front. So, while we do expect FIIs to return to India, whether this would happen on a large scale in 2016 or be pushed to 2017 remains to be seen,” Shankar maintained.
The unpredictability of foreign funds during 2015 has been blamed for the rout seen in the bellwether indices last year.
Figures from the National Securities Depository Limited (NSDL) showed that the FPIs (foreign portfolio investors) bought stocks and debt worth Rs.63,663 crore (over $10 billion) in 2015 from the previous year’s levels that exceeded Rs.1 lakh crore.
Nevertheless, data with the stock exchanges disclosed that FPIs had taken out a total of Rs.20,373.69 crore during 2015.
“Reforms such as the GST (Goods and Services Tax) bill remains the key to attract more foreign flows. Domestic flows are expected to remain buoyant,” Nevgi said.
In addition, experts cited that the softness in commodity prices, particularly that of crude oil, is expected to help in keeping a check on inflation and create room for further rate cuts that can help in reviving the investment sentiment.
“With oil and commodity prices expected to remain low, we expect the inflation trajectory to continue to trend downwards in 2016,” Agarwal told IANS.
“Assuming a normal monsoon, we expect inflation to remain in the RBI’s (Reserve Bank of India) comfort zone giving them enough headroom to cut interest rates further by at least another 50-100 basis points in this year.”
Nevgi explained: “Oil and commodity prices are important, but the market sentiments may not change on day-to-day moves. Larger and unexpected movements in short run will however affect the sentiments.”
Moreover, with investors’ focus now back on the chances of RBI easing key lending rates, inflation rhetoric is likely to become dominant in the initial months of 2016.
“The monsoon would be in the focus, as the rabi crop acreage so far has fallen by over five percent,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
Besides, investors would look forward to parliament’s budget session beginning end-February and the US Fed’s moves on the next round of rate hikes.
“With the last two budgets being slightly underwhelming when weighed against the markets’ hopes, budget 2016-2017 will go a long way in making the market believe again,” James said.
“Certainly, more US rate hikes can be expected, but markets would not be as weary of these as much it would if such hikes were fast-paced.”
However, on the downside, volatility on account of global divergence on monetary policy is expected to hurt Indian markets, as the US is expected to go in for more rate hikes and ECB (European Central Bank), Japan and China continue with their stimulus programmes.
“The divergence in monetary policy of the US and the rest of the world and the political realignment will flare up volatility in 2016,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
Volatility had dented key Indian indices last year, with markets scaling record highs, only to see their valuations drop sharply over the months.
As a result, the two most-quoted indices – the 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) and the 50-scrip Nifty of the NSE – fell by five percent and 4.1 percent respectively.
In comparison, the two indices had logged gains of 29.89 percent (Sensex) and 31.38 percent (Nifty) in 2014 to emerge as the best performers globally.
(Rohit Vaid can be contacted at rohit.v@ians.in)
by admin | May 25, 2021 | Opinions
Bombay Stock Exchange
By Vatsal Srivastava
It’s like 2008 again. But during such times, it is important to remember that there was a March 2009.
Looking at the price action yesterday (Aug 24) , particularly during the US session, where the Dow tumbled by almost 1,000 points (although the closing was not so bad) and the wild moves in currencies, especially the euro and the yen, there surely looks to be more pain ahead for the financial markets.
After almost two decades since the Asian crisis, it is the emerging market space, especially China, which is dictating markets in the developed world. Emerging market currencies are near ‘crisis valuations’ against the dollar while the Dollar Index is getting hammered as US 10-year yields trade at two percent, implying that a September Fed liftoff is certainly off the table.
What is even scarier is the fact that the recent sell-off across global equities has also been built upon a global growth scare. So, even if China launches a huge stimulus package, a sharp rebound will most likely be sold into. The RBI, unlike its western counterparts, who are already in QE mode and at the zero-bound, has sufficient ammunition to stabilise the free fall in the Indian markets.
It took capitulation in the financial markets for RBI Governor Raghuram Rajan to come out and finally sound slightly dovish and admit that interest rates should fall further in the current macro environment. He also reiterated that our vast FX reserves could be used to defend the INR depreciation.
Although delayed, his comments on rate cuts will surely restore some sense of calm and confidence in our financial system. However, Rajan must be careful about his timing when it comes to defending the rupee. Having failed to cap the USD/INR upside at 65-66, he should let the market take rupee where it wants to till the US Fed rate hike. It is only when the market has more clarity on the Fed hike (which now seems to be in December) will the dollar strength resurge. Further, even speculators will find it hard to go aggressively short at the rupee at these levels as we cannot be clubbed together with the export oriented “tiger” economies. So, keeping the old ‘don’t fight the Fed’ rule in mind, the rupee is best left untouched as of now and should be guided by market forces alone.
Rajan may or may not agree with the easy monetary policies in the Euro zone, the US and Japan. But in crisis times, he must adapt to pick up some smart strategies from his counterparts. Like the Bernanke put, Draghi’s put or his “whatever his takes” comment and the Bank of Japan’s Kuroda put, Rajan must immediately provide the Indian economy with a ‘Rajan put’. This should of course start with a 50 basis point rate cut.
In times like these, economies and markets decouple only when policymakers take urgent steps. There is no point playing catch up with contagion.
(Vatsal Srivastava is consulting editor with IANS. The views expressed are personal. He can be reached at vatsal.sriv@gmail.com)
