The News That Matters...(25th Oct to 29nd Oct 2021)
Government data showed that India's fiscal deficit for the period from Apr to Sep 2021 stood at Rs. 5.27 lakh crore or 3.5% of the budget estimate for FY22 as compared to 114.8% in the corresponding period of the previous fiscal. Tax revenue stood at Rs. 9.21 lakh crore or 59.6% of the budget estimate for FY22 as compared to 28.0% in the corresponding period of the previous fiscal. Total expenditure stood at 16.26 lakh crore or 46.7% of the budget estimate for FY22 as compared to 48.6% in the corresponding period of the previous year. Total receipts stood at Rs. 10.99 lakh crore or 55.6% of the budget estimate for FY22 as compared to 25.2% in the corresponding period of the previous year.
Government data showed that the index of eight core industries grew 4.4% in Sep 2021 as compared to a growth of 11.5% in Aug 2021 and 0.6% rise in Sep 2020. The natural gas sector witnessed the maximum growth of 27.5% followed by the cement sector and coal sector which grew 10.8% and 8.1% respectively. All the sectors grew in Sep 2021 barring the crude oil sector which witnessed a contraction of 1.7%. For the period from Apr to Sep of 2021, the index of eight core industries grew 16.6% as compared to a contraction of 14.5% in the corresponding period of the previous year.
According to the Ministry of Statistics and Programme Implementation's payroll data, formal job creation accelerated in Aug 2021, with 1.48 million formal jobs established under the Employee's Provident Fund Organisation (EPFO), up from 1.31 million in Jul 2021, a 12.9% increase.
Indian Equity Market
Indian equity markets ended the week with modest losses. Bourses were initially supported by the firm global cues and upbeat earning numbers of some of the big corporates for the quarter ended Sep 2021.
However, gains were short-lived amid fresh worries over China's property developer's debt crisis. Sentiments dampened further after the U.S. revoked the license of one of China's biggest telecoms companies, which added to fresh worries for the market participants.
Consistent selling by foreign institutional investors amid a downgrade of Indian equities by a major global investment bank continued to dent the investor's sentiments towards Indian markets.
On the BSE sectoral front, all major indices closed in the red. S&P BSE Power was the major loser, down 4.09%, followed by S&P BSE Bankex and S&P BSE Oil & Gas, which slipped 3.15% and 3.06% respectively. Currently, investors and other stakeholders in the power sector had been concerned about the timely recovery of cost due to changes in law, curtailment of renewable power and other related matters. The banking sector slipped as across the board profit booking weighed on the sentiment.
Indian Derivatives Market Review
Nifty Nov 2021 Futures stood at 17,715.30, a premium of 43.65 points above the spot closing of 17,671.65. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 397.27 lakh crore as against Rs. 382.66 lakh crore for the week to Oct 22.
The Nifty Put-Call ratio stood at 0.75 compared with the previous week's close of 0.82.
Domestic Debt Market
Bond yields rose following the weekly debt auction which led to a fresh supply of sovereign debt in the domestic debt market. Market participants also remained on the sidelines as they awaited the outcome of the U.S. Federal Reserve monetary policy review which is due on Nov 3, 2021. However, the fall in global crude oil prices and the decline in yields on U.S. Treasuries restricted further losses.
The yield on the 10-year benchmark paper (6.10% GS 2031) rose by 3 bps to close at 6.39% compared to the previous closing of 6.36%.
Data from RBI showed that India's foreign exchange reserves fell for the first time in three weeks to $640.10 billion as of Oct 22, 2021 from $641.01 billion in the previous week.
Yields on the gilt securities fell on 1,2,15,19 and 30-year maturities in the range of 3 bps to 24 bps and increased across the remaining maturities in the range of 2 bps to 9 bps barring 5, 13 and 14 -year paper which closed steady.
Corporate bond yields increased on 1-year paper and 7 to 9-year maturities by up to 3 bps and fell across the remaining maturities by up to 17 bps barring 6-year paper which closed steady.
The difference in the spread between AAA corporate bond and gilt securities expanded on 1 and 2-year paper by 18 bps and 19 bps respectively while it contracted across the remaining maturities in the range of 2 bps and 14 bps.
Regulatory Updates in India
Capital Market regulator Securities and Exchange Board of India (SEBI) in order to standardise benchmarks of mutual fund schemes proposed to bring in a two-tiered structure for benchmarking of certain categories. The first tier benchmark will be as per the category of the scheme and the second tier benchmark should be reflective of the investment style or strategy of the fund manager within the category. All the benchmarks followed should necessarily be Total Return Indices.
SEBI eased the framework governing the issue of shares with superior voting rights (SR shares). According to the new norms, promoters who have a net worth of over Rs. 1,000 crore can have superior voting rights in their companies, raising it from the current Rs. 500 crore. The move is expected to help new-age technology companies.
SEBI proposed to revise the investment norms for mutual fund schemes that invest as per the ESG (Environment, Sustainability and Governance) philosophy. According to the new norms, asset management companies should only invest in securities with Business Responsibility and Sustainability Report (BRSR) disclosures.
According to SEBI, mutual fund personnel, Trustees and Board members are prohibited from transacting in mutual fund schemes that are about to reveal any information to unitholders. As per SEBI, the information includes restrictions on redemptions or scheme winding up, creation of a segregated portfolio, change in investment objective, the accounting policy or asset valuation and conversion of a scheme from close-ended to open-ended or vice versa. The rule also applies if a security's liquidity position changes or if it defaults.
The governor of the Reserve Bank of India has recommended auditors to be more cautious, computer savvy and take a holistic approach when inspecting firms and checking on their smart accounting procedures. The regulator has recently discovered a number of cases of misconduct in which the auditor could intervene to help maintain financial stability.
The government is considering a new semiconductor design-linked incentive plan that would provide financial and infrastructure assistance to Indian MSMEs and startups from concept to manufacturing. When these startups begin producing and selling chips in the market, they will be eligible for extra incentives based on their net sales turnover under the scheme.
The Union Minister of Civil Aviation released Krishi UDAN 2.0. The objective of Krishi UDAN 2.0 is to improve value realisation through better integration and optimisation of Agri-harvesting and air transportation and contribute to Agri-value chain sustainability and resilience under different and dynamic conditions. The scheme proposes facilitating and incentivising the movement of Agri-produce by air transportation.
The Asian Development Bank (ADB) and the Government of India signed a $100 million loan which will help to promote agribusiness network to boost farm incomes and reduce food losses in the State of Maharashtra.
Data from the U.S. Commerce Department showed that U.S. economic growth slowed in the third quarter of 2021. The real gross domestic product increased 2% in the third quarter of 2021 after growing by 6.7% in the second quarter of 2021.
Data from the U.S. Labor Department showed that initial jobless claims in the U.S. for the week ended Oct 23, 2021 fell by 10,000 to 2,81,000 from the previous week's revised level of 2,91,000.
The European Central Bank left its key interest rate, the main refinancing rate, unchanged at zero, the deposit rate at -0.50% and the marginal lending rate at 0.25% as well as its forward guidance on asset purchases unchanged amid concerns over high inflation. Policymakers expect key interest rates to remain at current or lower levels until inflation reaches 2% far ahead of the projection horizon's end and remains stable for the remainder of the projection horizon.
According to flash data from Eurostat, eurozone inflation rose to 4.1% in Oct 2021 from 3.4% in Sep 2021. On the back of increasing energy prices, eurozone inflation rose quickly in Oct to its highest level since 2008.
The Bank of Japan maintained its monetary stimulus while downgrading its growth projection for the current fiscal year as supply-side limitations hindered output and exports despite poor demand. The fiscal 2021 growth forecast was lowered to 3.4% from 3.8%, but the fiscal 2022 forecast was raised to 2.9% from 2.7%. The growth forecast for the fiscal year 2023 was kept at 1.3%.
Global Equity Markets
U.S. equity markets gained on positive reaction to the latest batch of quarterly earnings news from big-name companies. Moreover, U.S. new home sales surged in Sep 2021, which added to the upside. Meanwhile, U.S. real Gross Domestic Product (GDP) rose 2% in the Sep quarter of 2021 slower than the 6.7% rise in the previous quarter which capped the gains.
The European markets went up during the week, reacting to the European Central Bank's (ECB) monetary policy announcement and digesting a few companies' quarterly earnings updates. The ECB left its key interest rates and its forward guidance on asset purchases unchanged, in line with expectations amid concerns over high inflation.
Asian stock markets largely closed in the red as investors remained worried that rising inflation might compel global central banks to tighten monetary policy sooner than expected.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury fell 8 bps to close at 1.56%, from the previous week's close of 1.64%.
U.S. Treasury prices rose during the week under review due to strong demand at a U.S. 2 -year note auction and U.S. 5-year note auction. The safe-haven appeal of the U.S. Treasuries improved further after U.S. economic growth slowed in the third quarter of 2021.
However, gains were capped on the growing possibility of aggressive monetary policy action from the U.S. Federal Reserve to combat rising inflation in the region. Market participants are of the view that the U.S. Federal Reserve may increase interest rates next year.
Gold prices fell as the U.S. dollar strengthened amid end-of-month position adjustments and on the growing possibility that the U.S. Federal Reserve will raise interest rates sooner than expected due to rising inflation in the region.
Brent crude oil prices fell after industry data showed crude oil stockpiles rose more than expected and the U.S. Oil prices witnessed additional pressure after Iran said discussions with world powers on its nuclear program would resume by the end of Nov 2021.
Baltic Dry Index
The index fell during the week due to sluggish Capesize and Panamax activities.
The Indian Rupee inched down against the greenback amid intensified inflation worries due to elevated global crude oil prices.
The euro weakened against the U.S. dollar on the growing possibility that the U.S. Federal Reserve will raise interest rates sooner than expected due to rising inflation in the region.
The pound weakened against the greenback on the growing possibility that the U.S. Federal Reserve will raise interest rates sooner than expected. However, speculation that the Bank of England may increase interest rates before the end of the year restricted further losses.
The Yen weakened against the U.S. dollar on the growing possibility that the U.S. Federal Reserve will raise interest rates next year.
The Week That Was...(25th Oct to 29nd Oct 2021)
The Week Ahead...(01st Nov to 05th Nov 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.