Indian Economy
Minutes of the Monetary Policy Committee (MPC) meeting held in October showed that the MPC is of the view that continued policy accommodation is required as the state of the domestic economy remains fragile. MPC is of the view that the recovery of the Indian economy may lose momentum due to a surge in coronavirus infections, supply bottlenecks and an increase in global crude oil prices. An accommodative monetary policy will ensure that India's recovery is durable and sustainable.
According to the Directorate General of Civil Aviation (DGCA), domestic passengers traveling by air grew 5.44% YoY to around 70.66 lakh in Sep 2021 from 67.01 lakh passengers in Aug 2021. The country's aviation regulator said 50.07 lakh people, 31.13 lakh people, 21.15 lakh people and 57.25 lakh people had traveled within the country by air in Jul, Jun, May and Apr respectively.
As per media reports, the Reserve Bank of India (RBI) may be considering abandoning its traditional approach to managing foreign exchange reserves if global yields decline, increasing the fiscal costs of doing so. RBI economist suggested in a research paper that the central bank should be more active in managing its currency assets, including looking beyond SDR currencies and actively managings its gold holding.
According to preliminary data of the commerce ministry, India's exports rose 40.5% YoY to $15.13 billion from Oct 1 to 14 due to health performance by petroleum products, engineering and chemicals. Imports surged 60.72% YoY to $14.82 billion.
Indian Equity Market
Indian equity markets dipped marginally during the week after witnessing robust gains in recent times. Improved economic data and good quarterly earnings numbers continued to influence the sentiments of the market participants.
However, markets could not hold on to the gains for long following weak global cues, led by China's economic growth data which slowed for the third consecutive month. Profit booking at higher levels also eroded the gains.
Investors also remained cautious and awaited corporate views on higher commodity costs and raw material expenses, which may hurt margins for companies even as they post profit increases.
On the BSE sectoral front, barring S&P BSE Bankex, all major indices settled for the week in the red. S&P BSE FMCG was the major loser, down 6.08%, followed by S&P BSE Consumer Durables and S&P Metal, which slipped 6.06% and 5.39% respectively.
Indian Derivatives Market Review
Nifty Oct 2021 Futures stood at 18,144.55, a premium of 29.65 points above the spot closing of 18,114.90. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 382.66 lakh crore as against Rs. 278.72 lakh crore for the week to Oct 15.
The Nifty Put-Call ratio stood at 0.82 compared with the previous week's close of 1.44.
Domestic Debt Market
Bond yields rose following a further rise in global crude oil prices and U.S. Treasury yields, and also after weekly government securities auction. However, losses were restricted on expectations that the Reserve Bank of India (RBI) may announce a special bond purchase auction through open market operations (OMO), which did not happen.
The yield on the 10-year benchmark paper (6.10% GS 2031) rose by 3 bps to close at 6.36% compared to the previous closing of 6.33%. Benchmark paper rose for the sixth consecutive week.
According to RBI'S scheduled bank's statement of position in India, bank credit grew 6.48% while bank deposits grew 10.17% as of Oct 08, 2021.
Yields on the gilt securities rose in the range of 3 to 22 bps across the maturities, barring 30-year paper that was unchanged. Yield rose the most on 1-year paper.
Corporate bond yields rose in the range of 4 to 23 bps across the curve. Yields rose the most on 4-year paper.
Spread between AAA corporate bond and gilt expanded in the range of 3 to 12 bps across the segments, except 1 and 4-year papers that contracted 17 and 22 bps respectively.
Regulatory Updates in India
Capital Market regulator Securities and Exchange Board of India (SEBI) amended the framework for investor grievance redressal system and arbitration mechanism at stock exchanges. The amendment will improve the effectiveness of investor grievance redressal and arbitration mechanism. Under the new arbitration mechanism framework, forming an exclusive panel for appellate arbitration is not required and members can serve on both the panels of arbitration and appellate arbitration. The earlier framework mandated segregation of arbitration and appellate arbitration panels.
SEBI proposed capping of ISINs (International Securities Identification Numbers) for corporate bonds that are issued on a private placement basis to enhance liquidity in the corporate bond market. According to SEBI, the capping of ISINs will reduce fragmentation across the bond market. Also, SEBI is of the view that issuers are presently not utilising even half of the maximum ISINs allotted to them.
SEBI barred investment advisors from advising on unregulated instruments like cryptocurrencies and digital gold. The move comes as it has come to the notice of SEBI that some registered investment advisers are engaged in unregulated activity by providing a platform for buying/ selling/ dealing in unregulated products including digital gold.
The government issued a notification for setting up 7 Mega Integrated Textile Region and Apparel (PM MITRA) Parks with a total outlay of Rs. 4,445 crore. PM MITRA Parks will provide a platform to create an integrated textiles value chain right from spinning, weaving, processing/dyeing and printing to garment manufacturing at a single location.
The Union Cabinet has approved the PM GatiShakti National Master Plan, which includes a multi-modal connectivity implementation, monitoring and support mechanism. The Prime Minister announced a Rs. 100 lakh crore national master plan for multi-modal connectivity in order to enhance infrastructure and lower logistics costs while also boosting the economy. Its goals include lowering logistics costs, increasing cargo handling capacity and shortening turnaround times.
For FY21, the government has approved non-productivity linked or ad hoc bonuses for central government personnel. Employees of central paramilitary forces and the armed forces will also be eligible for the bonus, according to an office document from the Finance Ministry's Department of Expenditure. Employees who were employed on Mar 31, 2021 and who had completed at least six months of continuous service during the FY21 would be eligible for this ad hoc incentive.
Global News/Economy
The U.S. Federal Reserve report showed, industrial production in the U.S. unexpectedly fell 1.3% YoY in Sep 2021 after a revised 0.1% (0.4% rise originally reported) fall in Aug 2021. Manufacturing output fell 0.7%, with the production of motor vehicles and parts plunging 7.2% amid the semiconductor shortage.
U.S. housing starts fell 1.6% to an annual rate of 1.555 million in Sep 2021 from a revised rate of 1.580 million in Aug 2021.
According to the Office for National Statistics, U.K. consumer price inflation slowed marginally 3.1% YoY in Sep 2021 as against 3.2% in Aug 2021. On a monthly basis, the consumer price index gained 0.3% in Sep following a 0.7% rise in Aug.
According to Eurostat, eurozone inflation rose 3.5% in Sep 2021 as against a 3% rise in Aug 2021. Core inflation rose 1.9% in Sep from 1.6% in the previous month.
The People's Bank of China has kept its benchmark loan price rates unchanged for the 18th consecutive month. The one-year loan prime rate remained at 3.85%, while the five-year loan prime rate remained at 4.65%.
The National Bureau of Statistics said China's Gross Domestic Product (GDP) rose 4.9% YoY in Sep quarter of 2021 sharply slower than 7.9% reported in the previous quarter.
Japan posted a merchandise trade deficit of 622.8 billion yen in Sep 2021 following the downwardly revised 637.2 billion yen deficit in Aug 2021. Exports rose 13% YoY in Sep following 26.2% gain in Aug. Imports rose 38.6% YoY in Sep as against 44.7% rise a month earlier.
Global Equity Markets
U.S.
U.S. equity markets rose on the back of upbeat economic data as initial jobless claims fell for the week ended Oct 16 while existing home sales rose more than expected in the month of Sep 2021.
Upbeat corporate earning numbers for the quarter ended Sep 2021 also contributed to the upside.
Europe
The majority of the European equity markets went down during the week on the relentless surge in commodity prices that may result in rising inflation. However, continued optimism over upbeat corporate earning numbers for the quarter ended Sep 2021 restricted losses.
Asia
Asian markets largely settled in the green for the week with investors taking positive cues from survey data showing factory activity growth in the country picked up in Oct from the previous month and the services sector expanded for the first time in 21 months.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury rose 7 bps to close at 1.64% from the previous week's close of 1.57%. Yields on the 10-year U.S. Treasury rose for eight out of nine weeks.
U.S. Treasury prices fell as the market participants after global central banks dampened expectations of near-term tightening.
Treasury yields rose further after weaker than expected U.S. housing data and weak auction of 20-year notes.
Moreover, losses extended after U.S. weekly jobless claims data came in slightly better than market expectations but some buying emerged at the end that restricted the downside.
Commodities Market
Gold
Gold prices settled for the week in the green, as a softer dollar provided some respite against higher U.S. bond yields and rising expectations that central banks could begin easing economic support.
Brent Crude
Oil prices hit multi-year highs initially on worries about coal and gas shortages in China, India and Europe, which spurred fuel switching to diesel and fuel oil for power. However, gains were restricted after coal and gas prices eased later.
Baltic Dry Index
The index fell during the week due to sluggish Capesize and Panamax activities.
Currencies Market
Rupee
The Indian Rupee gained against the U.S. dollar as foreign banks continued to sell the greenback, likely on behalf of their clients.
Euro
The euro rose against the U.S. dollar as market participants continued to offload long positions in the greenback that benefitted from an increase in expectations that the U.S. Federal Reserve will raise rates earlier than previously expected.
Pound
The pound remained unchanged against the U.S. dollar as downbeat U.K. retail sales numbers neutralised gains on rising expectations that the Bank of England will raise interest rates.
Yen
The Yen rose against the U.S. dollar after falling in the last six consecutive weeks on profit-taking in the latter currency.
The Week That Was...(18th Oct to 22nd Oct 2021)
The Week Ahead...(25th Oct to 29th Oct 2021)
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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.