The News That Matters (06th September to 10th September 2021)
Index of Industrial Production (IIP) rose 11.5% in July 2021 as compared to a contraction of 10.5% in July 2020. The manufacturing sector grew 10.5% in July 2021 as compared to a contraction of 12.7% in July 2020. The mining sector grew 19.5% in July 2021 as compared to a contraction of 12. 7% in July 2020 and the electricity sector witnessed a growth of 11.1% in July 2021 as compared to a contraction of 2.5% in July 2020.
According to the Center for Monitoring Indian Economy, in August 2021, India's unemployment rate increased to 8.3% from 7% in July 2021, with 1.9 million jobs lost, mostly in the agricultural sector. As a result, the employment rate fell from 37.5% in July 2021 to 37.2% in August 2021.
The Union government's net (post-refunds) direct tax collections increased 95% YoY to Rs. 3.7 lakh crore till September 2, 2021 of FY22, due to low base, improved economic activities, higher corporate earnings and better compliance despite a surge in refunds.
According to a major rating agency, India is predicted to produce solid economic growth in the next quarters, even as inflation led by food prices is expected to stay excessive. The economy is predicted to grow by 9.5% in FY 22, then by 7% the following year, which also noted that high nominal GDP growth is critical for fiscal consolidation in the future.
According to the Cabinet Committee on Economic Affairs (CCEA), the government increased the minimum support price for wheat by Rs. 40 to Rs. 2,015/- per quintal and for mustard seed by Rs. 400/- to Rs. 5,050 per quintal for the current crop year.
Indian Equity Market
Indian equity markets ended the holiday truncated week with muted gains. Bourses edged higher initially after weak U.S. job data renewed optimism that Federal Reserve would not hurry in tapering its asset-buying plans in the next meeting. Hopes of additional stimulus in Japan and China provided underlying support to the markets.
However, much of the gains were erased by profit-booking at higher levels. Investors also remained cautious ahead of the ECB meeting which may hint about their bond-buying program. Lingering concerns over rising COVID cases diminish the positive sentiments of the market participants.
Investors shrugged off the weakness after Finance Ministry cued for the strong momentum of economic recovery ahead.
On the BSE Sectoral front, the majority of the indices closed in the green. S&P BSE Consumer Durables was the top gainer, up 3.50% followed by S&P BSE Power and S&P BSE FMCG, which rose 1.51% and 0.92% respectively.
The consumer durables sector gained investor's attention as a rapid change to the sector dynamics provides the opportunity for some major Indian companies to strengthen their presence in the large market.
Indian Derivatives Market Review
Nifty September 2021 Futures stood at 17,364.30, a discount of 4.95 points below the spot closing of 17,369.25. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 250.99 lakh crore as against Rs. 315.06 lakh crore for the week to September 03.
The Put-Call ratio stood at 0.92 compared with the previous week's close of 0.84.
Domestic Debt Market
Bond yields inched up after the Reserve Bank of India (RBI) decided to conduct variable rate reserve repo action which was seen as a step to normalisation of monetary policy. Anticipation that the RBI may now shift its focus to address inflation as there are no signs of a third COVID-19 wave also contributed to the downside.
The yield on the 10-year benchmark paper (6.10% GS 2031) rose by 2 bps to close at 6.18% compared to the previous closing of 6.16%.
Data from RBI showed that India's foreign exchange reserves rose for the second consecutive week to $642.45 billion as of September 3, 2021 from $633.56 billion in the previous week.
The yields on gilt securities increased across the maturities by up to 43 bps barring 30-year paper which fell 1 bps.
Corporate bond yields increased across 2 to 7-year paper by up to 14 bps and fell across the remaining maturities in the range of 6 bps to 49 bps.
The difference in spread between AAA corporate bond and gilt expanded across 3 to 6-year paper in the range of 3 to 9 bps and contracted across the remaining maturities in the range of 18 to 50 bps barring 7-year paper which closed steady.
Regulatory Updates in India
Capital market regulator Securities and Exchange Board of India (SEBI) introduced T+1 (Trade plus 1 day) rolling settlement cycle for stocks on an optional basis. The new rule is expected to come into effect on January 1, 2022. The decision comes as SEBI has received requests from various stakeholders to further shorten the settlement cycle.
SEBI has modified the client-level position limits for trading in cross-currency futures and options contracts. Position limit can be defined as the maximum number of options or futures contracts an investor is allowed to hold on one underlying security. The revised limits will come into force with immediate effect.
SEBI has asked asset management companies (AMCs) to spend a minimum range of 0.03% to 0.13% of their asset base in their own schemes in order to balance the interests of fund houses and investors. The percentage that must be invested is determined by the scheme's risk level, which is classified as low, low to moderate, moderate, moderately high, high and very high. The new framework aims to reconcile the interests of asset management companies (AMCs) and mutual fund scheme unitholders.
The Union Cabinet has approved the signing of a memorandum of understanding between chartered accountant's apex body ICAI and the Chamber of Auditors of the Republic of Azerbaijan (CAAR). According to an official release, the signing of MoU will aid in the establishment of mutual cooperation in the areas of member management, professional ethics, technical research, professional accountancy training, audit quality monitoring and accounting knowledge advancement, among other areas.
According to media reports, the Union Cabinet may approve a production linked incentive (PLI) scheme for man-made fiber segment and technical textiles. This is expected to be done with a financial outlay of Rs. 10,683 crore over a time period of five years. The objective of the move is to boost domestic manufacturing and exports from the sector.
According to media reports, the Ministry of Commerce has recommended anti-dumping duty on Vitamin C from China for a period of 5 years. The move comes as the domestic industry has been impacted due to the dumped imports.
According to the Finance Ministry, in the latest Monthly Economic Review, despite the severe second wave of the coronavirus epidemic, India's V-shaped recovery in the first quarter of FY22 is a testament to the country's solid macroeconomic fundamentals. The minister, however, expressed concern about the high number of COVID-19 cases in Kerala and Maharashtra, emphasising the need to strengthen pandemic control and management in these two states.
According to the Labor Department, U.S. initial jobless claims fell 35,000 to 3,10,000 in the week ended September 4, 2021 from the previous week's revised level of 3,45,000.
According to the U.S. Federal Reserve's Beige Book, economic growth slowed slightly to a moderate pace in July through August. The book also mentioned that inflation was also reported to be steady at an elevated rate, with half of the districts describing the rate of price increases as strong and the other half as moderate.
The European Central Bank left its key interest rate, the main refinancing rate, unchanged at zero, the deposit rate at -0.50% and the marginal lending rate at 0.25%. The central bank also stated that it will reduce the pace of its emergency asset purchases, which began last year to help the economy during the COVID-19 crisis because policymakers are concerned that higher inflation will persist for a long time.
Data from Eurostat showed that the Gross Domestic Product (GDP) of the eurozone economy grew 2.2% on a quarterly basis in the second quarter of 2021 following a 0.3% fall in the first quarter of 2021 and a contraction of 0.4% in the fourth quarter of 2020. On a yearly basis, GDP expanded 14.3% in the second quarter of 2021 following a decline of 1.2% in the first quarter of 2021.
According to the Cabinet Office, Japan's Gross Domestic Product (GDP) rose 1.9% YoY in the second quarter of 2021 following a 4.2% contraction in the first quarter of 2021. On a seasonally adjusted quarterly basis, GDP rose 0.5% after sinking 1.1% (revised) in the three months prior.
Global Equity Markets
U.S. markets went down after weekly jobless claims fell to a near 18-month low for the week. to September 4, relieving concerns over a slowing economic recovery, but also stoking worries the Feb could move sooner than expected to scale back its accommodative policies. Meanwhile, investors continued to express concerns about the economic impact of the delta variant of COVID-19.
European markets largely closed lower amid worries that the rapid spread of the Delta variant of COVID-19 could significantly slow down the pace of global economic recovery.
Asian markets settled for the week in the green as easing concerns about the U.S.-China tensions and clarifications that Chinese regulatory crackdown on gaming companies was not as harsh as originally reported, lifted sentiment in the region.
Global Debt (U.S.)
The yields on the 10-year Treasury rose 1 bps to close at 1.34% from the previous week's close of 1.33%.
Initially, U.S. Treasury prices extended last week Friday's fall on downbeat U.S. jobs data.
However, losses reversed after a strong auction of 10-year amounting to $38 billion. Treasury prices gained following a strong auction of 30-year notes amounting to $120 billion.
Gains almost reversed at the end as U.S. economic data indicated high inflation could persist for some time.
Gold prices went down as uncertainty over the U.S. Federal Reserve's next moves on unwinding its economic support measures kept bullion in a relatively tight range.
Brent crude prices closed lower, weighed down by reports that China is looking to release some crude stock from its national reserve. Meanwhile, data from Energy Information Administration (EIA) showed crude stockpiles in the U.S. declined 1.529 million barrels in the week to September 03, much lower than an expected draw of 4.6 million barrels.
Baltic Dry Index
The index fell during the week due to sluggish Capesize and Panamax activities.
The Indian rupee declined against the U.S. dollar on hedging by importers and rise in the U.S. dollar index.
Euro fell against the U.S. dollar on rising U.S. Treasury yields. However, the downside was limited after a U.S. Federal Reserve official signaled a dovish outlook on the economy.
The Sterling fell against the U.S. dollar after the British government set out a plan to raise taxes but soon most of the losses reversed.
The Yen fell against the U.S. dollar on rising U.S. Treasury yields. However, most of the fall reversed after the U.S. government saw strong demand for the sale of 30-year bonds.
The Week that was...
06th September to 10th September
The Week Ahead
13th September to 17th September
Disclaimer: The information herein is meant only for general reading purposes and contains all factual and statistical information pertaining to Industry and markets which have been obtained from independent third-party sources and which are deemed to be reliable. The information provided cannot be considered as guidelines, recommendations or as a professional guide for the readers.