The News That Matters...(04th Oct to 08th Oct 2021)
The Monetary Policy Committee (MPC), in its monetary policy review, kept the key policy repo rate unchanged at 4.0%. The reverse repo rate thus remained unchanged at 3.35% and the marginal standing facility rate and the bank rate also stood unchanged at 4.25%. The MPC also decided to "continue with its accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward.
MPC retained real GDP growth at 9.5% in FY 22 consisting of 7.9% in Q2, 6.8% in Q3 and 6.1% in Q4 of FY22. Real GDP growth for Q1 2022-23 is projected at 17.2%. According to MPC, domestic economic activity is gaining traction with the ebbing of the second wave. Going forward, rural demand is likely to maintain its buoyancy.
CPI inflation is projected at 5.3% for 2021-22, 5.1% in Q2, 4.5% in Q3, 5.8% in Q4 of 2021-22, with risks broadly balanced. CPI inflation for Q1 2022-23 is projected at 5.2%. According to the MPC, consumer inflation (CPI) trajectory is set to edge down drawing comfort from the recent catch-up in Kharif sowing and likely record production.
Data from the private survey showed that the seasonally adjusted India Services Business Activity Index stood at 55.2 in Sep 2021 from 56.7 in Aug 2021. In Sep, India's demand and the lifting of Covid-19 restrictions, prompting businesses to hire more workers for the first time in nearly a year.
Indian Equity Market
Indian equity markets ended the week on a positive note. Good quarterly earnings from some of the index heavyweights lifted the sentiments of the investors. On the economic front, the Indian service industry grew for the second consecutive month in Sep which added buying sentiments of the market participants.
Global cues too boosted risk appetite after U.S. 10-year benchmark Treasury bond yields recoiled from the highest level since June, coupled with easing of the U.S. debt ceiling deal.
The Monetary Policy Committee's seemingly dovish policy, with status quo on repo and reverse repo rates, bolstered bullish sentiment on the last session of the week.
On the BSE sectoral front, the majority of the indices closed in the green. S&P BSE Consumer Durables was the top gainer, up 5.39%, followed by S&P BSE IT and S&P BSE Auto, which rose 5.54% and 4.40% respectively.
Consumer sectors witnessed strong buying interest during the week with consumer sentiment looking positive and consumer durable firms betting on the festive season to recover sales lost on account of the pandemic.
S&P BSE FMCG and S&P BSE Healthcare were the only losers, down 0.92% and 0.20% respectively.
Indian Derivatives Market Review
Nifty Oct 2021 Futures stood at 17,900.10, a premium of 4.90 points above the spot closing of 17,895.20. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 311.67 lakh crore as against Rs. 344.65 lakh crore for the week to Oct 1.
The Nifty Put-Call ratio stood at 1.30 compared with the previous week's close of 0.98.
Domestic Debt Market
Bond yields rose during the week on a continuous increase in global crude oil prices and U.S. Treasury yields. Yields increased further as the Reserve Bank of India (RBI) said it will pause its bond purchases through open market operations and announced a plan to withdraw more liquidity from the system. Moreover, weekly government auction further added to supply.
The yield on the 10-year benchmark paper (6.10% GS 2031) rose by 8 bps to close at 6.32% compared to the previous closing of 6.24%.
RBI conducted the auction of three government securities namely 4.26% GS 2023, 5.63% GS 2026, 6.67% GS 2035 and 6.67% GS 2050 for a notified amount of Rs. 24,000 crore, which was completely accepted.
Yields on the gilt securities rose in the range of 2 to 13 bps across the maturities, barring 1-year paper that fell 1 bps. Yield rose the most on 30-year paper.
Corporate bond yields rose by up to 9 bps across the curve, leaving 1-year paper that fell 40 bps.
Spread between AAA corporate bond and gilt contracted in the range of 3 to 5 or 39 bps on 1, 6, 7 and 10-year papers while 5-year papers were unchanged. Spread on remaining securities expanded in the range of 1, 2 or 5 bps.
Regulatory Updates in India
The Reserve Bank of India (RBI) will introduce the Internal Ombudsman Scheme (IOS) for NBFCs that have a higher customer interface to enhance complaint redressal in finance organisations. Detailed instructions on this will be issued separately. The central bank said the IOS for NBFCs will be the same as IOS for banks and non-bank payment system participants. The finance companies will appoint an ombudsman and grievance redressal mechanism to examine complaints about deficiency in service.
The Reserve Bank of India (RBI) has proposed to introduce a facility for carrying out retail digital payments in offline mode which means places where internet connectivity is low / not available across the country. The RBI Governor said that three pilots were successfully conducted under the scheme in different parts of the country.
The Securities Exchange Board of India (SEBI) has prohibited mutual fund distributors, investment advisers and online platforms from pooling assets or units for MF transactions from Apr 1, 2022. According to the SEBI, a few platforms combine the client's funds into a nodal account and then transfer to fund houses on a per transaction or lump sum basis, based on bilateral agreements with AMCs. According to the SEBI, fund houses can only execute financial or non-financial transactions if they have a service agreement with the service provider.
The Securities Exchange Board of India (SEBI) modified the rules on minimum percentages of monthly trades to be administered by mutual funds on the Request for Quote (RFQ) platform of stock exchanges. As per the revised norms, mutual funds are compelled to undertake a minimum of 25% of their total secondary market trades by value in corporate bonds and 10% of their total secondary market trades by value in commercial papers by placing/seeking quotes through one-to-many mode on the RFQ platform.
The Ministry of Coal has changed the Mineral Concession Rules, 1960, to allow the lessee of a captive mine to sell up to 50% of the total coal or lignite produced in a financial year, after meeting the requirements of the end-use plant linked to the mine, for an additional fee. Over 100 captive coal and lignite blocks with peak rated capacity of over 500 million tonnes per annum, as well as all coal and lignite yielding states, are projected to gain from the move.
SEBI has changed the rules for REITs and InvITs in terms of dissenting unitholder's exit options in various scenarios, such as acquisition and change of sponsors. Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) are two new investment vehicles. If an acquisition, change in sponsor, inducted sponsor, or change in control of sponsor or inducted sponsor is triggered as a result of an open offer, dissenting unitholders will have the option to exit.
According to data from the Labor Department, U.S. non-farm payroll employment rose by 1,94,000 jobs, much less than expected, in Sep 2021 after climbing by an upwardly revised 3,66,000 jobs in Aug 2021. However, the unemployment rate fell to 4.8% in Sep from 5.2% in Aug.
According to the minutes of the European Central Bank monetary policy meeting, the near-term increase in Eurozone inflation was mainly due to temporary factors and is expected to fade in a while and would not require policy tightening. The members agreed that an accommodative monetary policy stance is essential to remove the negative impact of the pandemic on inflation and to re-anchor of inflation expectations solidly around the new target. The members also said that risks to the economic outlook remained broadly balanced.
According to Jibun Bank, Japan's services Purchasing Manager's Index rose to 53.4 in Sep 2021 from 42.9 in Aug 2021.
According to IHS Markit, Caixin services Purchasing Manager's Index rose to 53.4 in Sep 2021 from 42.9 in Aug 2021. The service sector rose due to renewed and strong increases in both new work and output.
According to the Cabinet Office, Japan's current conditions index of the Economy Watcher's Survey, which measures the current situation of the economy, increased to 42.1 in Sep 2021 from 34.7 in Aug 2021.
Global Equity Markets
U.S. market rose after the U.S. Senate approved a bill to help the government avoid a default on its debt in the next few weeks. The agreement allows the debt limit to increase by $480 billion which will help the U.S. government to pay bills until Dec 2, 2021. However, gains were capped as U.S. jobs data for Sep 2021 came in below expectations and the start of the earnings season for the Sep quarter.
European equity markets rose after lawmakers in the U.S. reached an agreement to temporarily extend the debt limit thereby helping the U.S. government in avoiding a potential default. Gains were extended after the Russian President offered to ease Europe's natural gas crisis.
Asian markets largely went up amid easing concerns over a possible U.S. government default this month. Investors eyed key U.S. jobs data for any fresh insight into the timing of Federal Reserve tapering.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury rose 14 bps to close at 1.61% from the previous week's close of 1.47%. Yields on the 10-year U.S. Treasury rose for the seventh consecutive week.
U.S. Treasury prices fell as the U.S. government on worries about the debt ceiling and inflation concerns.
Treasury prices continue to decline on demand for riskier assets amid the stopgap debt ceiling plan in Congress.
In the end, U.S. Treasury yields hit multi-month high despite a weaker than anticipated U.S. employment report for Sep 2021 on the expectation that the U.S. Federal Reserve is on track with its tapering plans.
Gold prices slipped as inflation fears and escalating tensions between China and Taiwan fueled a rise in the U.S. dollar. However, lower than expected U.S. jobs data for Sep kept the dollar under pressure, thereby restricting the fall.
Brent crude oil prices rose as market participants deemed it unlikely that the U.S. would release emergency crude reserves or ban exports to ease tight supplies. Nonetheless, gains were restricted as inflationary worries sparked speculation that central banks around the globe may go for rate hikes in the near future.
Baltic Dry Index
The index rose during the week following improved Capesize and Panamax activities.
The Indian Rupee declined to its lowest level in six months against the U.S. dollar as concerns about surging global crude oil prices and potentially higher inflationary pressures accelerated risk aversion in the region.
The euro fell against the U.S. dollar as surging energy prices fuelled concerns about inflation and interest rate hikes.
The Sterling rose against the U.S. dollar on rising expectations on inflation and an aggressive Bank of England rate hike, which led to improved risk sentiment in equity markets.
The Yen fell against the greenback due to dampening safe-haven appeal and ahead of the U.S. nonfarm payroll report, which fell short of expectations.
The Week That Was...(04th Oct to 08th Oct 2021)
The Week Ahead...(11th Oct to 15th Oct 2021)
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.