The News That Matters (27th August to 03rd September 2021)
Government data showed that the growth of the Indian economy witnessed a growth of 20.1% in the first quarter of FY22 as compared to a contraction of 24.4% in the same period of the previous year. On the sectoral front, the construction sector witnessed the maximum growth of 68.3% as compared to a contraction of 49.5% in the same period of the previous year. The manufacturing sector witnessed a growth of 49.6% as compared to a contraction of 36.0% in Q1FY21. The agricultural sector grew 4.5% as compared to a growth of 3.5% in the same period of the previous fiscal.
Government data showed that the index of eight core industries grew 9.4% in July 2021 as compared to a growth of 9.3% in the previous month and a contraction of 7.6% in the same period of the previous year. The cement sector witnessed the maximum growth of 21.8% followed by the natural gas sector and coal sector which grew 18.8% and 18.7% respectively. All the sectors grew in July 2021 barring the crude oil sector which witnessed a contraction of 3.2% in July 2021. For the period from April to July of 2021, the index of eight industries grew 21.2% as compared to a contraction of 19.8% in the corresponding period of the previous year.
Government data showed that India's fiscal deficit stood at Rs. 3.21 lakh crore or 21.3% of the budget estimate for FY22. Tax revenue stood at Rs. 5.29 lakh crore or 34.2% of the budget estimate for FY22 as compared to 12.4% of the budget estimate in the corresponding period of the previous fiscal. Total expenditure stood at Rs. 10.04 lakh crore or 28.8% of the budget estimate for FY22 as compared to 34.7% of the budget estimate in the corresponding period of the previous year.
Indian Equity Market
Indian equity markets moved up leaps and bounds with benchmark indices touching fresh closing highs on almost all the days of the week.
Initially, bourses scaled new highs as dovish comments by the U.S. Federal Reserve Chairman boosted risk appetite. At the annual Jackson Hole, Wyoming, conference the U.S. central bank Chief indicated that the Fed is likely to begin tapering before the end of the year but was in no rush to hike interest rates.
Markets extended the rally after the strong domestic GDP data for Q1FY22 raised expectations over economic recovery amid prolonged pandemic restrictions. Amid third wave worries, satisfying vaccination numbers are providing support for the market.
On the BSE sectoral front, all the major indices closed in the green. S&P BSE Realty was the top gainer, up 10.18%, followed by S&P BSE Consumer Durables and S&P BSE Power, which went up 7.67% and 6.25%, respectively.
The realty sector drew investor's attention this week as record-low interest rates and an economic recovery from the pandemic fueled demand from an increasingly affluent middle class. The consumer durable sector also witnessed buying interest as investors are betting on the festive season and normal monsoon to boost consumption activity in the economy in the coming months.
Indian Derivatives Market Review
Nifty September 2021 Futures stood at 17,329.35, a premium of 5.75 points above the spot closing of 17,323.60. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 315.06 lakh crore as against Rs. 285.76 lakh crore for the week to August 27.
The Nifty Put-Call ratio stood at 1.35 compared with the previous week's close of 1.40.
Domestic Debt Market
Bond yields witnessed the biggest weekly fall in five months. Yields fell initially after the growth of the domestic economy came along with market expectations in the first quarter of this fiscal. Market sentiments were also boosted as the goods and services tax collection stayed above the one-trillion-rupees mark for the second month in August 2021.
Yields fell further after India's fiscal deficit for the period from April to July of FY22 narrowed to Rs. 3.21 lakh crore from Rs. 8.21 lakh crore in the same period of the previous year. Hopes of a supportive monetary policy moving ahead also contributed to the upside.
The yield on the 10-year benchmark paper (6.10% GS 2031) fell 9 bps to close at 6.16% from the previous week's closing of 6.25%. This was the biggest weekly fall since Apr 9, 2021 when bond yields came down by 16 bps.
Yields on gilt securities fell across the maturities by up to 22 bps. The maximum fall was witnessed on 4-year paper and the minimum fall was witnessed on 11-year paper.
Corporate bond yields increased on 1-year paper by 5 bps and contracted across the remaining maturities by up to 11 bps.
The difference in spread between AAA corporate bond and gilt expanded across the maturities by up to 13 bps barring 2, 6 and 7-year paper which contracted by up to 4 bps.
Regulatory Updates in India
SEBI has issued a circular in clarification to the recent regulation on disclosure of risk-o-meter of the fund benchmark index in addition to the fund risk-o-meter. It stated that AMCs shall disclose in all disclosures, including promotional material or that stipulated by SEBI, the risk-o-meter of the scheme wherever the performance of the scheme is disclosed and risk-o-meter of the scheme and benchmark wherever the performance of the scheme vis-a-vis that of the benchmark is disclosed. The disclosure requirement of the risk-o-meter of the benchmark is applicable for the primary benchmark which is specified in the Scheme Information Document. AMCs shall enter into agreements with their selected Index providers to provide the risk-o-meter for their benchmarks to the AMCs latest by the fifth day subsequent to the end of the month.
SEBI has ordered asset management companies (AMCs) to disclose facts about mutual fund scheme's risk and performance in all disclosures, including promotional material. In April 2021, SEBI mandated mutual funds to share risk, performance, and portfolio details with investors only for the schemes in which they have invested.
The Insolvency and Bankruptcy Board of India (IBBI) has proposed amendments to the Insolvency and Bankruptcy Code (IBC) in a bid to increase transparency in the liquidation process. The Insolvency and Bankruptcy Board of India (IBBI) stated in a discussion paper that the regulatory framework for the liquidation process has been improved on several occasions over the last five years to address the challenges faced by stakeholders, meet evolving requirements and aid in the achievement of the Code's objective.
IMF has increased its distribution of Special Drawing Rights (SDR) to India in keeping with India's current quota in the fund. According to RBI, on August 23, the IMF increased India's SDR quota to $12.57 billion, which is equivalent to $17.86 billion at the current exchange rate.
As per reports, the U.K. government announced a $1.2 billion package for public and private investment in green projects and renewable energy in India. They also announced the formation of the Climate Finance Leadership Initiative (CFLI) India collaboration, which aims to mobilise private finance into India's sustainable infrastructure. These investments will help India achieve its goal of 450 gigawatts of renewal energy by 2030.
According to media sources, the Reserve Bank of India (RBI) will form a committee to review applications for new umbrella entity (NUE) licenses and make suggestions. The committee will investigate numerous facets of NUE, ranging from the macroeconomic implications to the security dangers. Before distributing the licenses, the committee's recommendations will be considered. (NUEs are companies focussing on retail payment systems)
Global News/ Economy
According to the Labor Department, U.S. non-farm payroll employment rose by 2,35,000 jobs in August 2021 after increasing by an upwardly revised 1.053 million jobs in July 2021. Meanwhile, the unemployment rate fell to 5.2% in August from 5.4% in July.
According to the payroll processor ADP, U.S. private sector employment climbed much less than expected by 3,74,000 jobs in August 2021 after rising by a downwardly revised 3,26,000 jobs in July 2021.
According to the Institute for Supply Management, U.S. manufacturing Purchasing Manager's Index (PMI) inched up to 59.9 in August 2021 from 59.5 in July 2021.
According to data revealed by the Harmonised Index of Consumer Prices (HICP), Germany's preliminary harmonised index of consumer prices matched expectations and rose to 3.4% YoY in August 2021 as against 3.1% reported in July 2021.
Data from the National Bureau of Statistics showed that China's service sector contracted in August 2021. The non-manufacturing Purchasing Manager's Index (PMI) declined to 47.5 in August 2021 from 53.3 in the previous month. The manufacturing PMI fell to 50.1 in August 2021 from 50.4 in the previous month.
According to the latest survey from Jibun Bank, Japan's services Purchasing Manager's Index (PMI) fell to 42.9 in August 2021 from 47.4 in July 2021.
Global Equity Markets
U.S. markets largely witnessed gains even though the U.S. Fed has signaled its plans to begin scaling back its asset purchases later this year. Investors largely ignored weaker than expected ADP-based U.S. private-sector job data for August 2021.
Meanwhile, U.S. weekly jobless claims showed a modest decrease in the week to August 28. Jobless claims also fell to their lowest level since the week ended March 14, 2020.
The majority of the European markets went up in hopes that central banks will continue with their easy money policies to boost economic growth even after acceleration in eurozone inflation for August 2021. Also, weak factory data from Asia and Europe increased expectations the central banks will come up with more policy support.
Asian equity markets too ended the week on a higher note despite concerns over surging coronavirus cases in the region. Investors took positive cues from political development in Japan and weighed the impact of new regulations that tighten the time the under-18 Chinese population spends on online video games.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury inched up 2 bps to close at 1.33% from the previous week's close of 1.31%.
U.S. Treasury prices rose initially during the week under review as market participants awaited U.S. nonfarm payroll employment data from August 2021.
However, gains were neutralised as U.S. Treasury prices inched down after data showed that wages in the U.S. increased more than expected in August 2021 even as jobs growth slowed which dampened the safe-haven appeal of U.S. Treasuries.
Gold prices rose amid a decline in the U.S. dollar after the U.S. non-farm payrolls report for August 2021 showed a much lower than expected jobs gain, which could influence U.S. Federal Reserve's plans for cutting back its asset purchases.
Brent crude oil prices increased as a resurgence in global demand was generally expected. Oil prices found additional support following gradual recovery for the U.S. Gulf Coast export and refining hub as Hurricane Harvey, which hit earlier this week, appeared likely to further deplete stockpiles.
Baltic Dry Index
The index fell during the week due to sluggish capesize and panamax activities.
The rupee rose against the greenback as the latter weakened after the U.S. Fed Chief indicated at the symposium that tapering of its monthly asset purchase program could begin this year, but interest rate hikes were a long way off.
The euro rose against the greenack after the U.S. jobs data for August 2021 came below market expectations.
Sterling rose against the greenback after the U.S. jobs data for August 2021 came below market expectations which casted doubt over the timing of the U.S. Fed plan to scale back its bond buying program.
The yen inched up against the greenback as the latter fell after the U.S. jobs data for August 2021 came below market expectations whcih created uncertaininty over the timing of the U.S. Fed's plan to scale back its massive stimulus measures.
The Week that was....(30th August to 03rd September)
The Week Ahead...(06th September to 10th 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.