The Market News
The week that was (13th August to 20th August)
Wholesale Price Index (WPI) based inflation eased to 11.61% YoY in July 2021 from 12.07% in June 2021 and 13.11% in May 2021. The WPI Food Index also eased to 4.46% in July 2021 from 6.66% in June 2021 and 8.25% in May 2021. WPI based rate of inflation for crude petroleum and natural gas over the year stood at 40.28% compared to the same period of the previous year when the same stood at -18.58%. WPI inflation for the manufactured products stood at 11.20% in July 2021 compared to the same period of the previous year when the same stood at 0.59%.
Minutes of the monetary policy review held from August 2 to August 4 showed that the Reserve Bank of India (RBI) governor advocated for continued policy support with a focus on revival and sustenance of growth. The observation comes as RBI took note of considerable slack in the economy with domestic demand picking up at a slow pace and the possibility of a third wave of COVID-19 pandemic. The RBI governor also underlined the importance of remaining watchful of domestic inflationary pressures to bring down retail inflation to 4% over a period of time in a non-disruptive manner.
Government data showed that the Employee's Provident Fund Organisation (EPFO) added 12.83 lakh net subscribers in June 2021. Nearly 48% of the total net additions were in the age group of 18 years to 25 years. On a monthly basis, net subscribers increased by 5.09 lakh in June 2021 as compared to May 2021.
Indian Equity Market
Indian equity markets dipped marginally after witnessing initial strength during the week. Towards the beginning, benchmark indices extended their record high closing line, driven by strong buying in major metal industry stock and the index heavyweight stock. Investors found some respite after India's WPI inflation eased for the second consecutive month to 11.16% in July against 12.07% in June as food and crude prices softened. Strong buying interest in IT and FMCG heavyweight stocks, coupled with the downtrend of the COVID-19 cases in India boosted investor sentiments.
Markets soon gave up the gains later, mainly dragged by weak global cues. A cautious undertone prevailed amid fears of slowing global growth and a potential easing in U.S. stimulus.
On the BSE sectoral front, the majority of the sectors settled in the red. S&P BSE Metal was the major loser, down 8.62%, followed by S&P BSE Bankex, which fell 5.29% and 3.28% respectively.
The metal sector fell amid profit booking after witnessing initial gains. Meanwhile, S&P BSE FMCH was the top gainer, up 3.29%, followed by S&P BSE IT and S&P BSE Teck, which went up 1.43% and 0.81% respectively.
Indian Derivative Market Review
Nifty August 2021 Futures stood at 16,433.70, a discount of 16.80 points below the spot closing of 16,450.50. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 244.94 lakh crore as against Rs. 284.06 lakh crore for the week to August 13.
The Nifty Put-Call ratio stood at 1.21 compared with the previous week's close of 1.73.
Domestic Debt Market
Bond yields traded in the tight range as it inched down in a holiday-truncated week after the RBI announced to conduct the open market purchase of five government securities of Rs. 25,000 crore on August 26, 2021, under the G-sec Acquisition Programme. Market participants also remained on the sidelines and awaited the minutes of the MPC's monetary policy meeting held from August 2 to August 4 which was released post-market hours on August 20.
The yield on the 10-year benchmark paper (6.10% GS 2031) fell marginally by 1 bps to close at 6.23% from the previous week’s close of 6.24%.
Data from RBI showed that India's foreign exchange reserves fell for the first time in three weeks to $619.37 billion as of August 13, 2021, from a record high of $621.46 billion in the previous week.
Domestic Debt Market (Spread Analysis)
Yields on gilt securities increased on 1, 11 and 12-year paper by up to 2 bps and fell across the remaining maturities by up to 8 bps.
Corporate bond yields fell across 2 to 10-year maturities in the range of 2 bps to 15 bps barring 1 and 15-year paper which increased 8 bps respectively.
The difference in the spread between AAA corporate bond and gilt expanded across the maturities in the range of 2 bps to 7 bps barring 2, 3 and 10-year paper which contracted by up to 7 bps.
Regulatory Updates in India
Capital market regulator Securities Exchange Board of India (SEBI) came out with norms that have made it easier for companies to launch initial public offers (IPSs). SEBI has reduced the minimum lock-in period for promotor's investment post an IPO to 18 months from three years, under certain conditions. In addition, SEBI has streamlined the disclosure requirements of group companies. The move comes at a time when many companies are looking to list on the stock exchanges.
The government has amended the Foreign Exchange Management (non-debt instruments) Rules, 2019. This was done to enable the increase in foreign direct investment limit in the insurance sector to 74%. The index encapsulates data on many dimensions of financial inclusion in a single number ranging from 0 to 100, with 0 denoting complete financial exclusion and 100 denoting complete financial inclusion. The index comprises three broad parameters - usage (45%), access (35%) and quality (20%). The FI-Index for the period ending March 2021 was 53.9 against 43.4 for the period ending Mar 2017.
RBI came out with revised guidelines for the hiring of lockers under which the liability of banks will be limited to 100 times its annual rent in case of fire, theft, building collapse, or fraud by bank employees. Banks need to include a phrase in the locker agreement preventing the hirer from keeping anything unlawful or harmful in lockers, which will take effect on January 1, 2022.
The Health Minister has launched Aroghya Dhara 2.0 to expand the reach of Ayushman Bharat - Jan Arogya Yojna and raise awareness about it. The minister launched three initiatives namely Adhikar Patra, Abhinanadan Patra and Ayushman Mitra.
The cabinet has approved the National Mission on Edible Oils-Oil Palm (NMEO-OP) with a financial outlay of Rs. 11, 040 crore to boost domestic oil palm production over the next five years and lessen the country's reliance on edible oil imports.
The government has constituted a committee for doubling the production and quadrupling the exports of handlooms in a span of 3 years. The committee is expected to submit the final report within 4 days from the day of constitution.
The National Commodity and Derivative Exchange Limited (NCDEX) launched the futures contract on NCDEX GUAREX, India's first sectoral index in the agri-commodities basket. NCDEX GUAREX is a price-based index that tracks the price movement in the futures contracts of its underlying namely Guar Seed and Guar Gum Refined Splits, in real-time. Guar Seed and Guar Gum Refined Splits will be weighted at 63.43% and 36.57% respectively in the index.
Global News / Economy
According to the minutes of the U.S. Federal Reserve meeting, the central bank believes it will be appropriate to begin tapering asset purchases in 2021. Most participants assessed the "significant further progress" criterion as achieved with respect to the price stability goal and as near to being satisfied with respect to maximum employment, leading to the expectation that the Fed will taper its asset purchases this year.
Data from the U.S. Labour Department showed that initial jobless claims in the U.S. for the week ended August 14, 2021, fell by 29,000 to 2,48,000 from the previous week's revised level of 3,77,000 (3.75,000 originally reported for the previous week).
According to a flash estimate from Eurostat, the Eurozone's Gross Domestic Product rose 2% QoQ in the second quarter of 2021 as against a 0.3% fall in the first quarter of 2021. On yearly basis, GDP rebounded 13.6% in the second quarter after shrinking 1.3% in the first quarter of 2021.
The People's Bank of China kept benchmark lending rates unchanged in its monetary policy review. The one-year loan prime rate was maintained at 3.85% and the five-year loan prime rate at 4.65%.
According to Cabinet Office preliminary data, Japan's Gross Domestic Product expanded an annualised 1.3% YoY in the second quarter of 2021 following a 3.9% contraction in the first quarter of 2021.
Global Equity Markets
U.S. markets remained under pressure after minutes of the U.S. Federal Reserve (Fed) meeting showed there was still some disagreement about the timing of tapering the asset purchases which led to some ambiguity on the Wall Street.
European markets fell sharply following sell-off in mining and energy companies and amid uncertainties about U.S. Fed's tapering plans. Additionally, worries about tighter regulation in China and the fast-evolving situation in Afghanistan also dented sentiment.
Asian markets were no exception to the weakness seen in their global peers. Worries about slow-down in global growth and uncertainty over Federal Reserve's policy stance kept investors worried. Chinese and Hong Kong shares closed lower with tech shares coming under pressure as regulatory fears continue to weigh on investor sentiment.
Global Debt (U.S.)
Yields on the 10 year U.S. Treasury inched down 2 bps to close at 1.26%, from the previous week's close of 1.28%. Yields rose for the second time in seven weeks.
U.S. Treasury prices rose initially after China's factory output retail sales growth slowed sharply in July 2021 which fueled concerns of a global economic slowdown. The developments in Afghanistan further boosted the safe-haven appeal of the U.S. Treasury.
Gains were extended after minutes of the U.S. Federal Reserve (Fed) monetary policy review held in July 2021 showed that the Fed at present is not ready to start tapering its asset purchase program, even though they are expected to make an announcement by the end of the year.
Gold prices rose marginally, supported by its safe-haven appeal amid worries over a spike in COVID-19 cases that could dampen the global economic outlook. Gains were capped as it had to compete with the dollar to attract investors seeking safe-haven assets.
Brent crude oil prices fell amid concerns about the outlook for energy demand. China's factory output and retail sales in July 2021 declined reflecting a slowdown in the world's largest economy's recovery from the pandemic and raised concerns about energy demand.
Baltic Dry Index
The index rose during the week due to improved Capesize and Panamax activities.
The Indian rupee fell against the U.S. dollar on concerns that the U.S. Fed might start tapering its asset purchase program soon.
The euro weakened against the greenback as unreset in Afghanistan and the rapid spread of the Delta Coronavirus variant boosted the safe-haven appeal of the greenback.
The Sterling fell against the U.S. dollar as global risk aversion on concerns over widespread coronavirus infections propelled investors towards the safe-haven greenback.
The yen weakened against the U.S. Dollar as the safe-haven appeal of the greenback improved on concerns over unrest in Afghanistan, a slowing Chinese economy and widespread coronavirus infections.
The Week that was (16th Aug to 20th Aug)
The Week Ahead (Aug 23 to Aug 27)
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.