Indian Economy
The Asian Development Bank (ADB) has lowered India's GDP forecast for FY22 to 10% from 11% earlier, citing the impact of the second wave of the COVID-19 pandemic on services, domestic consumption and the urban informal sector. India's economic recovery has been hampered by a spike of COVID-19 cases in May, which has resulted in a negative reduction in the growth forecast. The pandemic, however, subsided faster than expected, with several states relaxing their lockdown measures.
The Organisation for Economic Co-operation and Development (OECD) has marginally lowered India's growth projection by 20 basis points (bps) to 9.7% in FY22. OECD also lowered growth projection by 30bps to 7.9% for FY23. The reduction in growth projection came due to pandemic risks. ( 1 bps is equal to 1/100th of 1%)
Foreign Direct Investments (FDI) in India rose 112% to $20.42 billion during the period Apr 2021 to Jul 2021 as against $9.61 billion of FDI equity inflows in the same period last year. During the first four months of FY22, the Automobile Industry emerged as the leading industry, accounting for 23% of the total FDI Equity inflow, followed by Computer Software & Hardware (18%) and Services Sector (9%) respectively.
According to a Reserve Bank of India study, total software services exports increased by 2.1% in FY21 to USD148.3 billion, including services given by foreign affiliates of Indian enterprises. Computer and ITES services accounted for 65.3% and 34.7% of total software services exports, respectively. BPO services made up the majority of IT-enabled service exports (ITES).
India Equity Markets
Indian equity markets oscillated between gains and losses before ending the week in the positive territory with Sensex breaching the 60,000 milestone. Weak global cues kept bourses under pressure amid concerns over the inability of a major Chinese property developer to pay part of its huge debt.
Markets managed to recoup its initial weakness with investors shrugging off U.S. Fed's comment that it may start tapering as early as Nov and a probable rate hike in 2022. Receding concerns on the debt crisis of one of the Chinese property developers later during the week supported buying interest. Reduction in COVID cases and the strong vaccination numbers coupled with optimism around the Capex cycle revival also boosted sentiments.
On the BSE sectoral front, the majority of the indices closed in the green. S&P BSE Realty recorded double-digit gains during the week, up 21.31%, followed by S&P BSE Teck and S&P BSE IT, which rose 4.00% and 3.53% respectively.
Realty became the investor's preferred sector as the interest rates have been low and the government policies remained supportive. The technological advancements in the sector have also been one of the reasons that have led to the bullish movement.
Indian Derivative Market Review
Nifty Sep 2021 Futures stood at 17,853.60, a premium of 0.40 points above the spot closing of 17,853.20. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 348.15 lakh crore as against Rs. 315.10 lakh crore for the week to Sep 17.
The Nifty Put-Call ratio stood at 1.27 compared with the previous week's close of 1.15.
Domestic Debt Market
Bond yields fell initially on reports about the inclusion of domestic debt in global bond indices in the current financial year and expectations that the benchmark 10-year paper to be again included in the RBI's bond purchases in the next auction also.
However, gains reversed at the end following a surge in U.S. Treasury yields and global crude oil prices. Also, the central government raised Rs. 31,000 crore at its last weekly auction for the first half of FY22.
RBI conducted the open market purchase of three government securities under the G-sec Acquisition Programme (G-SAP 2.0) and simultaneous sale of government securities for an aggregate amount of Rs. 15,000 crore each, which were completely accepted.
Yields on gilt securities rose by up to 24 bps on 1 to 7, 10 and 14-year papers while remaining securities fell in the range of 3 to 22 bps.
Corporate bond yields rose in the range of 4 to 16 bps across the curve, leaving 1-year paper that fell 9 bps.
Spread between AAA corporate bond and gilt expanded in the range of 3 to 18 bps across segments, except 1 and 2-year papers that contracted 33 & 9 bps, respectively.
Regulatory Updates in India
SEBI has issued a clarification circular on 'Alignment of interest of Key Employees ('Designated Employees') of Asset Management Companies (AMCs) with the Unitholders of the Mutual Fund. Among the several clarifications stated by the capital market regulator, it is stated that junior employees shall be required to invest 10% during Oct 01, 2021, to Sep 30, 2022, and 15% during Oct 01, 2022, to Sep 30, 2023. Moreover, all junior employees shall be mandatorily required to invest 20% of the Alignment circular with effect from Oct 01, 2023, onwards. The phased implementation for junior employees shall cease to apply from the date such employee attains the age of 35 years.
The GST Council clarified, that the unutilised balance in CGST and IGST cash ledger would be transferred between distinct persons (with the same PAN, registered across different states) without going over the refund procedure. It would benefit telecom companies, insurers and banks having operations across several states, as well as captives of foreign companies in India that deal with other overseas businesses of the mother company.
At the next meeting of the GST Council, some states are expected to raise the issue of extending by five years the compensation period of the Goods and Services Tax (GST) beyond 2022. Kerala, Punjab and Chhattisgarh are among those that have said the compensation is inadequate. This compensation for revenue shortfall will end in Jun 2022.
The Reserve Bank of India issued a Master Direction on loan transfers, requiring banks and other lending institutions to have a thorough strategy for such transactions that have been approved by the board of directors. Lending institutions use loan transfers for a variety of reasons, including liquidity management, exposure rebalancing and strategic sales. Additionally, a strong secondary market for loans will aid in the creation of new liquidity sources.
The Reserve Bank of India released a Master Direction on the securitisation of standard assets to make it easier to repackage them into tradeable securities with various risk profiles. Prudently constructed securitisation transactions can help a well-functioning financial market by improving risk distribution and liquidity for lenders when originating new loan exposures. The Minimum Retention Requirement (MRR) has been established by the central bank for various asset types.
The Commerce and Industry Minister soft-launched the National Single Window System for Enterprises, claiming that it will free businesses from the burden of running to government offices for permissions and registrations. He went on to say that the site will improve the ecosystem's transparency, accountability and responsiveness and that all information would be accessible from a single dashboard.
Global News/Economy
The U.S. Federal Reserve kept interest rates on hold in its monetary policy review and indicated that tapering of the central bank's asset purchases could begin in the near future but did not specifically indicate though, as to when that might happen. The U.S. central bank also downwardly revised forecasts for U.S. GDP growth in 2021 to 5.9% from 7.0%, while forecasts for GDP growth in 2022 were upwardly revised to 3.8% from 3.3%. The U.S. Federal Reserve also attributed elevated inflationary pressures on the U.S. to "transitory factors".
According to. the Organisation of Economic Cooperation and Development, the global growth forecast for 2022 is now 4.5%, up from 4.4% in May 2021. The forecast for 2021 has been lowered to 5.7% from 5.8% in May 2021.
The Bank of England has chosen to keep the key interest rate of 0.10% unchanged. The MPC also kept the existing stock of corporate bond purchases at GBP 20 billion and the objective for government bond purchases at GBP 875 billion, bringing the entire quantitative easing program to GBP 895 billion. The bank lowered its growth forecast for the third quarter of 2021, citing production supply concerns. Since the Aug report, the level of U.K. GDP for the third quarter has been revised down by about 1%.
The Bank of Japan maintained its monetary policy on current accounts held by financial institutions at the central bank at -0.1%. The bank will continue to buy a significant number of Japanese government bonds without imposing an upper limit, ensuring that 10-year JGB yields stay around 0%.
Global Equity Markets
U.S.
The majority of the U.S. equity markets rose after U.S. Fed, in its monetary policy review indicated no imminent removal of its ultra-easy monetary policy.
Concerns over the debt crisis of a major real estate developer in China also eased to some extent after the Chinese property developer reached a settlement with mainland bondholders.
Europe
European equity markets went up after euro-area consumer confidence improved in Sep 2021 while Germany's Ifo Institue projected the German economy to grow faster than previously estimated next year.
Asia
Asian markets fell as investors continued to assess the debt crisis scenario of China's major property developer. Although the company reached a settlement with mainland bondholders, no tangible progress was noted and no clarifications were forthcoming from the company on the payment of coupon.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury rose 9 bps to close at 1.45%, from the previous week's close of 1.36%.
U.S. Treasury prices rose initially as concerns over solvency issues of a major Chinese property developer spooked global financial markets which boosted the safe-haven appeal of the U.S. Treasuries.
However, the trend reversed soon as the U.S. Treasury prices fell sharply after the U.S. Federal Reserve opened the door to raising interest rates as early as next year, a potential move that was reinforced by the Bank of England's outlook on rates and a rate hike by the Norges Bank (Central Bank of Norway). The Norges Bank become the first major Western central bank to raise interest rates following the onset of the coronavirus pandemic.
Commodities Market
Gold
Gold prices fell after the U.S. Federal Reserve in its monetary policy review indicated that interest rates in the U.S. may be raised sooner than expected.
Brent Crude
Brent crude oil prices rose amid rising fuel demand and reduction in U.S. crude inventory in the week ended Sep 17, 2021, which was the lowest since Oct 2018. Delayed recovery in output from the Gulf of Mexico region, which has been severely disrupted by two hurricanes also provided support to the oil prices.
Baltic Dry Index
The index rose during the week due to improved Capesize and Panamax activities.
Currencies Markets
Rupee
The Indian Rupee fell against the greenback in anticipation of the withdrawal of policy support by the U.S. Fed and on worries over solvency issues of a major Chinese property developer.
Euro
The euro fell against the greenback as concerns over solvency issues of a major Chinese property developer spooked global financial markets.
Pound
Sterling fell against the dollar on persistent default worries surrounding a major Chinese property developer.
Yen
The yen fell against the greenback in anticipation of the withdrawal of policy support by the U.S. Fed and worries that interest rate hikes in the U.S. may come sooner than expected.
The Week that was... (20th Sep to 24th Sep 2021)
The Week Ahead...(27th Sep to 01st 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.