Review of Indian Economy & Markets - Week ended 26th September 2015

• With Bihar Assembly elections in the month of October and Prime Minister’s Visit to USA to attend UN General Assembly and meet CEOs of Silicon valley companies for investments in India, nothing much happened domestically. Many of the ministers of Ruling Party BJP are camping in Bihar for campaign with each of them camping there for at least 2-3 days and one Public Holiday in the middle of the week, this week can be taken as rather dull.
• As per the figures released by the Reserve Bank of India, Corporate India’s foreign borrowings increased by around 48% in the month of August 2015 compared to same month previous year. This is by both automatic approval route as well as External Commercial Borrowings. The borrowings in August 2016 stood at USD 750.76 Million in August 2015 compared to USD 507.40 Million in August 2014.
• The Reserve Bank of India (RBI) has notified norms that allow banks to upgrade credit facilities extended to borrowing entities upon a change in ownership, so long as the ownership has been changed outside ‘Strategic Debt Restructuring Scheme’. The move would further enhance banks’ ability to bring in a change in ownership of borrowing entities which are under stress primarily due to operational/ managerial inefficiencies despite substantial sacrifices made by the lending banks.
• In a big relief to foreign firms, government announced that the Income Tax Act will be amended with retrospective effect to exempt from minimum alternate tax (MAT) the overseas companies that covered under double taxation avoidance agreements (DTAAs). Foreign companies that do not have a permanent establishment in India will be exempt from paying MAT on profits from April 2001. The provisions of Section 115JB of Income Tax will not apply to foreign companies with effect from April 1, 2001, if they are resident of a country with which India has DTAA and they do not have a permanent establishment (PE) in India, said an official statement.
• As per the advance estimates of Ministry of Agriculture, the output of Groundnut, Coarse Cereals, Tur (Redgram), Cotton, Maize, Rice in Khariff may be down while that of Urad (Blackgram), Castor Seed and Soy bean are expected to go up.
• With the anticipated arrivals of the imported goods, the prices of pulses eased by around 4-5% in wholesale markets. Same is the case with Onions. However, not much change is observed in rates of Pulses in Retail Markets. However Onion prices started coming down marginally during this week.
• With Urea imports surging by 43% in April – August period compared to last year and the deficient monsoon till September, the country is sitting on a stockpile of the fertilizer.

Markets

Indian Equity markets closed this truncated week lower by 1.4%. Both the stock market indices viz., Sensex and Nifty ended lower due to weakening of Indian Currency against USD, weakness in global markets. Metal stocks ended lower due to continued weakness in Chinese Economy and stockpiling of metal stocks with that country. Net flows from FIIs turned negative. The declines were more than advances as the Nifty fell by nearly 169 points before recovering marginally.

Following are the top gainers and losers in Nifty during the week

Ganiers	% change	Losers	% change
IDFC	5.2	Tata Motors	-8.1
Lupin	4.8	NMDC	-8.1
Cairn India	4.6	Coal India	-7.3
Maruti	3.8	Bharti Airtel	-6.7
Infosys	3.3	JSPL	-6.5

Market focus now shifts to Reserve Bank of India which expected to come out with Monetary Policy on 29^th September 2015. With a lot of pressure both direct and indirect on the Reserve Bank Governor, the general consensus is that the benchmark rates may be cut by 25 basis points. We can expect choppy markets if this does not turnout as expected.

Currency

USD strengthened against INR during this week from INR 65.868 on 18^th September to INR 66.16 on 23^rd September 2015 due to the expectation of a rate hike later this month by Fed as well as increase in month-end demand from importers. Sustained outflows by Foreign Portfolio Investors to the tune of nearly USD 190 – 195 Million also contributed for this weakening. 

Review of Indian Economy & Markets – Week ended 19th September 2015

• As per the figures released by the Ministry of Commerce and Industry, India’s merchandise exports registered a decline of 20.66% in Dollar terms (decline of 15.22% in Rupee terms) during August 2015 compared to August 2014. Exports for the period April – August 2015 declined by 16.17% (10.94% in Rupee terms compared to the same period last year. Global economic slowdown is a major cause for this decline. Merchandise exports contribute to around 15% of country’s GDP.
• Compared to August 2014, exports of Rice (-21.26%, other cereals (-40.10%), Iron Ore (-29.75%), Engineering Goods (-24.23%), Petroleum products (-44.30%) contributed to the negative growth in merchandise exports in August 2015 while Pharmaceuticals (13.33%), Jute Products (57.07%), Handicrafts & handmade carpets (54.46%) and Tea (10.68%) registered a growth.
• Imports also registered a decline of 9.95% at USD 33.74 Billion in August 2015 compared to August 2014. The decline in Rupee terms is around 3.77%. The imports for the period April – August 2015 were down by 11.61% (-6.06% in Rupee terms) compared to April – August 2014. In August 2015, imports of Project goods (-46.04%), Petroleum, Crude & Products (-38.65%), Coal, Coke & products (-16.12%) contributed to the decline compared to August 2014. Gold imports registered biggest growth of 150% in August 2015 compared to August 2014 with imports of Fertilizers and silver contributing substantially. Urea imports surged 43% during the April – August period compared to same period last year. 
• Government reduced import tariff on Gold and Silver to USD 359 per 10 grams and USD 470 per kg respectively - With the commencement of festive season from September 17 (Ganesh Chaturdhi) which will continue for next 2-3 months, the imports of Gold may go up further in coming months.
• Government has permitted foreign investment in partly paid shares and warrants to give a fillip to Foreign Direct Investment in India.
• Government imposed a 20% provisional safeguard duty on certain categories of steel imports including hot rolled flat products. This is expected to provide the much needed relief to domestic producers by curbing imports.
• Rainfall deficit in India since June 1 this year is around 16%.
• In April – August period acreage under paddy in Andhra Pradesh (one of the top producers of Paddy) declined by 245,000 hectare due to failure of monsoon and non-availability of water in reservoirs. With deficient rain fall across India by around 16%, there is a possibility of reduction of acreage under paddy and other crops during this Khariff season. However, the revival of monsoon in September may provide much needed soil moisture for Rabi crops reducing the possibility of spike in food grain prices.
• In line with the announcement in budget speech about reduction of corporate income tax rate to 25% in four years, the Finance Ministry announced that the list of tax exemptions to be phased out will be brought out shortly.
• The central statistical office (CSO) has revised the base year of Consumer Price Index (CPI) from 2010 to 2012 with effect from the release of indices from January 2015. As per the indices, the combined CPI for August 2015 (Provisional) is pegged at 3.66% compared to 3.69% for July 2015 (revised) and 7.03% for August 2014. As per the data released the rural CPI increased from 4.35% in July 2015 (revised) to 4.47% in August 2015 (provisional). However the urban CPI declined from 2.94% in July to 2.67% in August. It is also to be noted that both rural and urban CPI declined from levels of 7.67% and 6.39% in August 2014 to levels reported in August 2014 - Though the indices report decline, one did not see much decline in prices in day to day life. In fact most of the prices are ruling at higher levels compared to those observed in previous month.  
• There is little change in prices of Pulses and Onion during this week though there is a 4-5% decline in wholesale prices of Pulses due to starting of arrival of imports. However, there may not be much improvement in prices of Red gram (Tur Dal) till December 2015 till the arrival of new crop.

Markets

Indian stock markets closed positively during this week with Sensex and Nifty recording a growth of 2.47% and 2.17% respectively over previous week after the much awaited US Fed rate review became a non-event as the FOMC meeting decided to keep the bench mark rates unchanged. The focus now shifts onto September 29 when Reserve Bank of India announces the policy as there is mounting pressure on RBI Governor to reduce the benchmark rate.

Nifty reclaimed the 8000 levels intraday but closed the week at 7982 registering 2.47% growth. Only DIIs were the net buyers this week at INR 10.88 Billion. Nifty Managed to hold 100 WMA (weekly moving average) which is at 7,634. Top six Sensex companies viz., RIL, HDFC, SBI, Infosys, HDFC Bank and ONGC added INR 263.46 Billion in market capitalization while TCS, ITC, Coal India and Sun Pharma lost INR 147.66 Billion in market capitalization.

Top 5 Nifty Gainers	Top 5 Nifty Losers
Tata Power Company	Tata Motors
Axis Bank	Larsen & Toubro
Power Grid Corporation	Tata Steel
Sun Pharma Industries	Cairn India
JP Associates	Bajaj Auto

Companies from Construction, Power and Banking sectors reported a positive growth in stock prices while those from Engineering Sector registered a decline.

Currency

The USD – INR exchange rate improved from INR 66.412 / $ on 31^st August 2015 to INR 65.868 / $ on 18^th September 2015. The decision of FOMC not changing the benchmark rates has contributed to this improvement the in exchange rate in the last 2-3 days. 

Review of Indian Economy & Markets - Week ended 12th September 2015

Round-up of Indian Economy and Markets during just concluded week.

Index of Industrial Production (IIP) for the month of July was released during this week. Industrial output recorded a growth of 4.2% during the month July. This growth was possible due to the growth in outputs of Manufacturing, Capital Goods and Consumer durable segments. Trend in IIP during from January 2015 till July is as follows

Please note that IIP for June was initially estimated at around 3.8% but was revised later to 4.4%.

A look at the components of IIP indicates that except for Consumer non-durables every other segment showed a good growth over same month previous year.

• Manufacturing sector up 4.7% in July 2015 compared to 0.3% down in July 2014
• Capital good sector up 10.6% in July compared to 3% down in July 2014
• Consumer durables up 11.4% in July this year compared to 20.4% down same month last year
• Consumer non-durables down 4.6% in July 2015 compared to 5.2% up in July 2014.

It is generally expected the IIP continues to show good growth in August onward. However there is a possibility of it showing a reduction (in my opinion) in September - November period more particularly in Consumer Durable sector as Rural India is reeling under near drought conditions and may postpone consumption during the festive season.

Government approved the proposal to introduce Gold Monetization scheme and Sovereign Gold Bond scheme during this week. The idea of introducing such a scheme was expressed by the Finance Minister during his budget speech. The Gold Bond scheme is expected to reduce the demand for physical gold and the Monetization scheme is expected to release physical gold lying with Indian public to Government which in turn can sell the same to Jewelers.

Government approved the Spectrum Trading guidelines for Telecom Companies during this week. Spectrum is the bandwidth leased by the Central government to Telecom companies (Telcos) to offer their mobile telephone and other related services. By allowing the trading of spectrum between telcos, many companies can share the same bandwidth which was not allowed earlier. This will increase the capacity of the telcos and provide them an opportunity to offer better services to consumers.

Coal linkages were announced to NTPC's  1320 MW Barh Thermal Power plant. This will reduce the cost of generation of this plant by 50% to around INR 2 per unit.

The ruling party again will get into the election mode starting from this week after the announcement of polling dates for elections to Bihar Assembly. As the Prime Minister is the main campaigner for the party and the  Parliament is in recess there may not be many important policy decisions during this period.

Prices of pulses continue their upward journey unabated for quite sometime now. As per the Government of India estimates, Arhar (Red gram) prices went up by around INR 50 during the April - September period while as per the market information the prices went up by INR 30 in the last month itself. Arhar, Urad (Black gram) and Moong (Green gram) are ruing above Rs 130, Rs 120 and Rs 100 per kg respectively during this week while they were at  around Rs 80, Rs 82, Rs 90 per kg same period previous year. Central Government at last took notice of the situation and started taking corrective measures. Import of 10, 000 tonnes of Arhar and Urad is already in pipeline and expected to reach Indian shores around third week of September. Tenders were floated for import of another 5.000 tonnes. Instead of a knee-jerk reaction, Government should have initiated these measures some months back itself to reign in the prices.

Onion prices though got stabilized still ruling at around Rs 60 - 80 per kg during this week. Mumbai and Delhi are getting onions from Egypt and Afghanistan now. Government will be importing  1000 tonnes over and above 10,000 tonnes planned. However the prices are expected to rule around this level till October.

Stock Markets

Markets remained volatile during this week albeit recovering a bit. Nifty and Sensex went up by 1.75% and 1.60% respectively during this week. Nifty closed at 7789.30 at the end of the week. The index managed to stay over the 100 WMA (weekly moving average) which stood at 7634. Major gainers this week were Real Estate, Automobiles and Engineering Sectors while FMCG, Pharma and Energy sectors were major losers during this week.

Though the markets recovered by around 1.74% this week, they are still down from the levels at the close of August 2015. Volumes are showing a declining trend in the last two sessions of trading and may remain cautious for some time in the near future due to the expectations on the outcome of Federal Reserve rate review.  

Review of indian stock markets & economy - Week ended 4th September 2015

This is my first effort on weekly reviews. Will try to add more details over the coming days.

 

Indian stock markets (based on Nifty) slumped by 4.4% during this week. This is the second time during the current financial year Nifty lost more than 4% during a week. With the current plunge in markets Nifty falls to a low of 7626 in this week which is a 55 week low. 

The index is currently hovering around the 100 week moving average of 7618 which was not tested during the past 2 years. Any fall below this level may see further downward movement in the markets more on sentiments than the economic factors.

The market volatility levels increased by around 12% during the current week compared to the previous one. 

In effect this literally wiped out all the wealth creation which happened in the past 1 year (after the euphoria of electing Bharatiya Janata Party to form a central government with an overwhelming majority).

There may be several reasons for this downfall witnessed in the recent weeks

• Mishandling of the economy by the earlier government - could have been put back on rails by current dispensation
• Melt down of Chinese Economy
• Continuous decline in Industrial production - down 8 out of 15 months (April 2014 - June 2015) which is more than 50% of the time
• Decline in exports for a continuous 5 months during the current financial year
• Fears on US Job data (which for August 2015 stood at around 173,000 less than estimated figures)
• Fears on a probable rate hike by US Fed Reserve by the end of this month

There are some additional worrying factors

The country witnessed a sudden (though) a seasonal increase in prices of Onions which forms a part of the staple food of the country. Not sure whether the import plan of 10,000 metric tonnes through MMTC (a PSU). As per the news reports the tender was floated only in the last week. Though the government promised some change in 48 hours around one week ago there is hardly much reduction in Onion prices. 

There is a news report in Hindu Business Line that the Tomato (another important vegetable used in India after Potato and Onions) prices started going up in Northern India. Hope the government will take necessary steps to arrest the prices of Tomatoes.

The country achieved 69% of the Fiscal deficit target for the whole Financial year 2016 (April 2015 - March 2016) during the period April - July 2015 itself. Unless proper steps are taken there is probability of overshooting the targeted fiscal deficit by the end of the year.

The Quarter on Quarter GDP growth rate declined to 7% from 7.5% during the current quarter (April - June). If this continues further there is a possibility of the country ending with a growth rate of around 6.5% - 6.7%. If this is the expected growth rate on the newly constituted base data, imagine what cold be the growth rate on earlier base data.

I expect that we should tighten our belts for more bumpy ride during the current financial year.