The News That Matters....(10th Sep to 17th Sep 2021)
Consumer Price Index-based inflation (CPI) marginally eased to 5.30% in August 2021 from a 5.59% rise in July 2021 and 6.69% in August 2020. The CPI for August 2021 stayed within the Reserve Bank of India's tolerance level (2% to 6%) for the second straight month. The Consumer Food Price Index also eased to 3.11% in August 2021 from 3.96% in July 2021 and 9.05% in August 2020.
Wholesale Price Index (WPI) based inflation rose to 11.39% YoY in August 2021 from 11.16% in July 2021. However, the WPI Food Index eased to 3.34% in August 2021 from 4.46% in July 2021. WPI based rate of inflation for crude petroleum and natural gas over the year stood at 40.03% in August 2021 compared to August 2020 when the same stood at -16.44%. WPI inflation for manufactured products stood at 11.39% in August 2021 compared to August 2020 when the same stood at 1.36%.
India's merchandise trade deficit widened to $13.81 billion in August 2021 from $8.20 billion in August 2020. The trade deficit thus widened by 68.30%. Merchandise exports grew 45.76% YoY to $33.28 billion in August 2021 from $22.83 billion in August 2020. Merchandise imports rose 51.72% YoY to $47.09 billion in August 2021 from $31.03 billion in August 2020. Oil imports in August 2021 stood at $11.65 billion which was higher by 80.64% in dollar terms compared to August 2020. Non-oil imports were estimated at $35.43 billion in August 2021 which was 44.13% higher in dollar terms compared to August 2020.
Indian Equity Markets
Indian equity markets settled for the week in the positive terrain with benchmark indices continuing to touch fresh record highs and Sensex breaching the 59,000 level for the first time. Risk appetite boosted after data showed retail price inflation slipped to a four-month low of 5.3% in August from 5.59% in the previous month.
Global cues also remained positive as a slower than expected rise of the U.S. inflation data downplayed the risk of tapering of the stimulus measured by the U.S. Federal Reserve.
Markets rallied following the government's announcement of a relief package for the telecom sector and production-linked incentives for the auto sector.
On the BSE sectoral front, the majority of the sectors closed in the green. Banking stocks went up with RBI Governer commenting that stressed assets situation "looks manageable" as the stock of gross non-performing assets (NPAs) remained stable even after the second wave of the pandemic.
The auto sector gained investor's attention during the week after Union Cabinet approved the revised production linked incentive (PLI) scheme for the automobile sector, which aims at promoting domestic manufacturing and create jobs.
Indian Derivatives Market Review
Nifty September 2021 Futures stood at 17,603.15, a premium of 18.00 points above the spot closing of 17,585.15. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 315.10 lakh crore as against Rs. 250.99 lakh crore for the week to September 10.
The Nifty Put-Call ratio stood at 1.15 compared with the previous week's close of 1.27.
Domestic Debt Market
The bond yields fell after U.S. inflation rose less than expected in August 2021, which eased concerns over an interest rate hike by the U.S. Federal Reserve. Another positive was domestic detail inflation that eased in August 2021.
However, gains were almost reversed on news reports that the central government will borrow in the second half of this fiscal year to fund the Goods and Services Tax compensation (GST) to states. The RBI continued to suck out excess liquidity from the system through variable-rate reverse repo auctions, which fueled concern for more such measures moving ahead.
The yield on the 10-year benchmark paper (6.10% GS 2031) fell by 1 bps to close at 6.17% compared to the previous closing of 6.18%.
The yields on gilt securities fell by up to 39 bps across the maturities, barring 1, 3, 5 & 19-year papers that rose by up to 2 bps while the 4-year paper was steady.
Corporate bond yields rose in the range of 2 to 68 bps across the curve, leaving 2 to 4 & 15-year papers that fell in the range of 4 to 11 bps. Yield rose the most on 1-year paper.
Spread between AAA corporate bond and gilt expanded by up to 66 bps across segments, except 3, 4 & 15-year papers that contracted 12, 4 and 3 bps respectively.
Regulatory Updates in India
The Finance Minister made a host of choices at the GST Council meeting. The Council agreed to extend the reductions on some Covid-related medications until December 31, 2021. Two Covid medications were given GST exemption by the GST Council. The GST Council has reduced the tax rate on cancer drugs from 12% to 5%. The GST rate on biodiesel for mixing with fuel has been reduced from 12% to 5%. Restaurant services provided through e-commerce meal delivery providers will be subject to GST, which will be levied at the point of delivery.
The Union Cabinet has approved a telecom sector relief package that includes a four-year ban on telecom businesses paying statutory dues and permitting 100% foreign investment through the automatic route. These measures are expected to ease the cash flow issues being faced by some players in the industry.
The Union Cabinet has authorised Rs. 26,058 crore production linked incentive (PLI) scheme for the auto, auto components and drone industries to improve India's manufacturing capacity. The PLI scheme will encourage the development of a worldwide supply chain for sophisticated automotive technology in India.
The Securities and Exchange Board of India (SEBI) has proposed revising the settlement rules to align them with the specific nature of violations committed by firms in order to make the mechanism more effective. The regulator has recommended revising the timelines for settlements and rationalising the fee structure, which is an application involving an out-of-court resolution of securities law breaches.
The Finance Minister issued a formal government guarantee on the securities receipts that the new "bad bank" will issue to banks as it acquires non-performing assets. The government will provide a guarantee of Rs. 30,600 crore.
According to the commerce and industry, by November 1, 2021, India and the U.K. plan to begin negotiations on a trade agreement. By March 2022, the two countries hope to reach an interim trade agreement, which will be followed by a comprehensive FTA. Early concessions on select essential high priority items and services linked to tariffs or market access will be part of the interim agreement.
The Insurance Regulatory and Development Authority of India (IRDAI) will shortly allow a slew of new non-life policies in India, including title insurance and surety insurance. The purpose of a title insurance policy is to safeguard a property buyer/developer against financial loss resulting from a defect in the title to real property. Surety insurance is designed to safeguard parties against financial loss as a result of payment defaults.
IRDAI has announced new trade credit insurance guidelines, which will take effect on November 1, 2021. The goal is to support the trade credit insurance industry's long-term viability and economic stability by identifying trade losses caused by credit risks. These recommendations will apply to all insurers transacting general insurance businesses who are registered under the Insurance Act of 1938, according to an IRDAI circular.
According to the Labor Department, the U.S. consumer price index rose 0.3% MoM in August 2021 after rising 0.5% in July 2021. Excluding food and energy prices, core consumer prices inched up 0.1% MoM in August 2021 after increasing 0.3% in July 2021.
According to the Commerce Department, the U.S. retail sales rose 0.7% MoM in August 2021 after falling by a revised 1.8% in July 2021.
According to data from the National Bureau of Statistics, China's retail sales rose 2.5% YoY in August 2021 against an 8.5% rise in July 2021. In August, retail sales grew at a considerably slower rate as the Delta variant epidemic weighed on consumer confidence, while industrial output growth slowed due to supply chain bottlenecks and rising new material costs.
According to the Cabinet Office, Japan's government downgraded its economic assessment amid rising downside risks from the current domestic and overseas infections and negative effects through the supply chains.
According to data from the Office for National Statistics, the U.K. unemployment rate fell 0.3% points from the previous quarter to 4.6% in three months to July 2021. The employment rate rose 0.5% points to 75.2% in three months to July 2021.
According to data from the Office for National Statistics, the U.K. consumer price index (CPI) rose 3.2% YoY, the highest rate since 2012, following a 2% rise in July 2021. On the monthly basis, CPI rose 0.7% in August as against unchanged from July.
Global Equity Markets
U.S. markets dipped despite a lower than expected increase in U.S. consumer prices in August 2021 as investors continued to presume that the U.S. Federal Reserve is likely to begin tapering its asset purchases by December 2021. Market participants also remained cautious due to a resurgent COVID-19 virus and the U.S. Federal Reserve meeting scheduled next week.
European markets fell considerably as UK inflation accelerated to a more than 8-1/2-year high and on disappointing China's retail sales and industrial production data. UK's inflation data triggered the expectation that the Bank of England might soon start tapering its stimulus.
Asian markets witnessed a mixed trend amid concerns about slowing global growth and bets on early tapering by the U.S. Federal Reserve.
Global Debt (U.S.)
The yields on the 10-year U.S. Treasury rose 2 bps to close at 1.36%, from the previous week's close of 1.34%.
U.S. Treasury prices rose initially after inflation in the U.S. rose less than expected in August 2021 which led to uncertainty as to when the U.S. Federal Reserve might start tapering its monthly asset purchase program.
However, the trend reversed after retail sales rebounded in August 2021 which dampened the safe-haven appeal of U.S. Treasuries. U.S. Treasury prices fell further on the growing possibility that the U.S. Federal Reserve could reduce its asset purchase by the end of the year despite a surge in COVID-19 cases.
Gold prices witnessed pressure as an unexpected increase in the U.S. retail sales raised expectations that the Fed may reduce its stimulus sooner, which also drove a rally in the dollar. Meanwhile, investors are focussing on the upcoming U.S. Federal Reserve meeting.
Brent Crude prices went up as offshore U.S. production continues to slowly return. Oil prices found additional support as industry data showed a larger than expected drop in U.S. crude inventories, as well as the anticipation that demand will increase as vaccination rollouts expand.
Baltic Dry Index
The index rose on a WoW basis due to improved Capesize and Panamax activities.
The Indian rupee rose against the U.S. dollar following gains in the domestic equity market and greenback sales by some foreign banks.
The euro fell against the greenback on the growing possibility that the U.S. Federal Reserve could reduce its asset purchases by the end of the year.
The Sterling fell against the dollar after the U.S. retail sales unexpectedly increased in August 2021.
The yen fell against the greenback on the growing possibility that the U.S. Federal Reserve could reduce its asset purchases by the end of the year. However, most of the losses were neutralised after the U.S. inflation rose less than expected in August 2021.
The Week that was...(13th September to 17th September 2021)
The Week Ahead...(20th September to 24th 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.