The News That Matters...(27th Sep to 01 Oct 2021)
India's fiscal deficit for the period from Apr to Aug 2021 stood at Rs. 4.68 lakh crore or 31.1% of the budget estimate for FY22 as compared to 109.3% in the corresponding period of the previous fiscal. Tax revenue stood at Rs. 6.45 lakh crore or 41.7% of the budget estimate for FY22 as compared to 17.4% in the corresponding period of the previous fiscal. Total expenditure stood at Rs. 12.77 lakh crore or 36.7% of the budget estimate for FY22 as compared to 41.0% in the corresponding period of the previous year.
India's index of eight core industries grew 11.6% in Aug 2021 as compared to a growth of 9.9% in July 2021 and a contraction of 6.9% in Aug 2020. The cement sector witnessed the maximum growth of 36.3% followed by the natural gas sector and coal sector which grew 20.6% each. All sectors grew in Aug 2021 barring the crude oil and fertilizer sector which witnessed a contraction of 2.3% and 3.1% respectively, in Aug 2021.
India's current account balance recorded a surplus of USD 6.5 billion (0.9% of GDP) in Q1 of FY22 as against a deficit of USD 8.1 billion (1% of GDP) in Q4 FY21 and a surplus of USD 19.1 billion (3.7% of GDP) in Q1 of FY21. The surplus in the current account in Q1 of FY22 was mainly due to contraction in the trade deficit to USD 30.7 billion from USD 41.7 billion in the preceding quarter as well as improvement in net services receipts.
India's Manufacturing Purchasing Manager's Index (PMI) rose to 53.7 in Sep 2021 from 52.3 in Aug 2021. Manufacturing activity in India improved as companies benefited from strengthening demand conditions amid the easing of COVID-19 restrictions.
Indian Equity Market
Indian equity market settled for the week in the negative territory, dragged by concerns surrounding global economic recovery and persistent inflationary pressure in the U.S. Market participants chose safe-haven assets over risky assets following the rise of U.S. bond yields and crude oil prices.
China's realty sector debt woes continued to weigh on the investor's sentiments. Meanwhile weak industrial profits data from China also created headwinds for the ongoing rally of the global markets. U.S. Federal Reserver's scaling back of asset purchases program also soured market sentiments.
However, the fall was cushioned by official data showing India's core industrial sector recording a growth of 11.6% in Aug, which is perceived as a stark improvement from last year.
On the BSE sectoral front, the major indices witnessed a mixed trend. While S&P BSE Power was the top gainer, up 6.35%, followed by S&P BSE Oil & Gas and S&P BSE Metal, up 4.14% and 2.74%, respectively. S&P Teck was the major loser, down 5.34%, followed by S&P BSE IT and S&P BSE Bankex, down 5.21% and 1.71% respectively.
Power stocks are in the limelight amid news around the Electricity Amendment Bill 2021 that could be a game-changer, along with elevated energy prices and increasing power demand particularly in China and the European region. On the other hand, weak global cues have kept IT and tech stocks under pressure.
Indian Derivatives Market Review
Nifty Oct 2021 Futures stood at 17,530.20, a discount of 1.85 points below the spot closing of 17,532.05. The total turnover on NSE's Futures and Options segment for the week stood at Rs. 344.65 lakh crore as against Rs. 348.15 lakh crore for the week to Sep 24.
The Nifty Put-Call ratio stood at 0.98 compared with the previous week's close of 1.27.
Domestic Debt Market
Bond yields rose following an increase in global crude oil prices and U.S. Treasuries yields. The rise in oil prices fuelled concerns of an increase in domestic inflationary pressures. Treasury yields rose on the growing possibility that the U.S. Federal Reserve will start tapering its assets purchase program by the end of this year and raise interest rates sooner than expected.
Losses increased on a fresh supply of government securities in the weekly auction. Also, market participants anticipate strong liquidity withdrawal steps at the RBI's monetary policy decision on Oct 8, 2021.
The yield on the 10-year benchmark paper (6.10% GS 2031) rose by 6 bps to close at 6.24% compared to the previous closing of 6.18% after moving in a range of 6.18% to 6.25%.
Yields on the gilt securities rose by up to 14 bps across the maturities, barring 11 and 12-year papers that fell 7 and 12 bps, respectively while the 30-year paper was unchanged.
Corporate bond yields surged by up to 46 bps across the curve, leaving 1-year paper that fell 52 bps.
Spread between AAA corporate bond and gilt contracted 1, 14 and 67 bps on 1 and 4 to 6-year papers while remaining securities expanded in the range of 7 to 39 bps.
Regulatory Updates in India
The Finance Ministry has formed two committees of state finance ministers to access present tax slabs and GST exempt items, identify potential evasion sources and recommend modifications to IT systems. The Group of Ministers (GoM) on rate rationalisation will also examine the inverted duty structure and recommend rationalisation solutions, such as merging tax rate slabs.
The Securities Exchange Board of India (SEBI) has given its approval for the establishment of a Social Stock Exchange and its regulatory framework. The capital market regulator stated that it will work with NABARD, SIDBI and stock exchanges to establish a Rs. 100 crore capacity-building fund. A new part of existing stock exchanges will be the Social Stock Exchange. The Social Stock Exchange will allow non-profit and for-profit social firms with a stated social goal and impact to list.
The Securities Exchange Board of India (SEBI) has agreed to implement the idea of 'swing pricing' for all open-ended debt mutual fund schemes except for overnight funds, gilt funds and gild with 10-year maturity funds. This step is intended to deter major investors from making unexpected withdrawals. The framework will be applicable from March 1, 2022. Swing pricing is a method for fund companies to change the net asset value (NAV) of a scheme in response to inflows and outflows. Its goal is to reduce the impact of significant redemptions on existing investors by limiting the dilution of a fund's unit value.
Prime Minister launched the digital Ayushman Bharat Mission and stated that the project would bring about a revolutionary transformation in India's health facilities, improve ease of living and digitally preserve people's health records. In a virtual address, the minister stated that the mission would provide a unified online platform that would allow for interoperability across the digital health ecosystem.
The Securities Exchange Board of India (SEBI) has issued a revamped risk management framework for mutual funds, which includes both necessary and recommended aspects. Asset Management Companies (AMCs) must conduct a self-assessment of their risk management framework and process and submit a report to SEBI along with a roadmap for implementing the framework.
The Securities Exchange Board of India (SEBI) has established electronic gold and silver ETFs, two new investment vehicles. SEBI has created a framework wherein gold will be transacted in the form of 'Electronic Gold Receipt' (EGR) at stock exchanges. Silver ETFs have been approved by the market regulator. It will follow the same regulatory framework as existing gold ETFs. As a result, fund companies will be able to sell silver ETFs in the near future.
According to data from the Commerce Department, U.S. real gross domestic product rose 6.7% in the quarter ended Jun 2021 as compared to the 6.6% rise previously reported. The upwardly revised GDP growth in the second quarter reflects a modest acceleration from the 6.3% rise in the first quarter.
According to the Institute for Supply Management, U.S. manufacturing PMI rose to 61.1 in Sep 2021 from 59.9 in Aug 2021. The organisation did highlight, however, that businesses and suppliers continue to face an unprecedented amount of challenges in meeting rising demand.
According to the revised data from the Office for National Statistics, U.K. gross domestic product grew 5.5% sequentially in the quarter ended Jun 2021 instead of the 4.8% growth estimated previously.
According to the flash data from Eurostat, the eurozone's inflation rose 3.4% in Sep 2021 against 3% in Aug 2021. Core inflation that excludes energy, food, alcohol and tobacco rose 1.9% in Sep 2021 from 1.6% in Aug 2021.
According to data from Destatis, Germany's retail sales rose 1.1% MoM in Aug 2021 as against a 4.5% fall in Jul 2021. On a yearly basis, retail sales growth held steady at 0.4% in Aug.
According to the latest survey from Caixin, China's manufacturing PMI came in at 50 in Sep 2021 as against 49.2 in Aug 2021.
Global Equity Markets
U.S. market declined on concerns about the outlook for U.S. inflation. The market largely ignored news that the lawmakers in the U.S. avoided a government shutdown, with the Senate and the House both passing a stopgap spending bill.
The elevated level of U.S. Treasury yields kept investors wary following U.S. Federal Reserve's plans to begin scaling back its asset purchases in the near future.
European markets fell, dragged by weak economic data from the region. While eurozone manufacturing growth weakened in Sep, the euro bloc inflation accelerated for the third straight month in Sep. Political uncertainty in Germany also kept market sentiments bearish.
Asian markets largely closed in the red, mirroring the weakness of their global peers. Concerns about the implications of a deepening power shortfall in China as well as U.S. Fed tapering hints weighed deeply on investor's sentiment.
Global Debt (U.S.)
Yields on the 10-year U.S. Treasury rose 2 bps to close at 1.47% from the previous week's close of 1.45%. Yields on the 10-year U.S. Treasury rose for the sixth consecutive week.
U.S. Treasury prices fell during the week under review on the growing possibility that the U.S. Federal Reserve may soon start tapering its asset purchase program before the end of the year, a move that could lead to higher interest rates next year.
However, further losses were restricted due to an impasse in Washington over the U.S. debt ceiling that threatened to plunge the U.S. government into a shutdown.
U.S. Treasuries rose further after initial jobless claims in the U.S. increased for the week ended Sep 25, 2021 and as market participants rebalanced their portfolios towards the end of Sep 2021.
Gold prices reported small weekly gains supported by a weaker dollar and as worries about rising inflation coupled with imminent tapering of the U.S. Fed's stimulus measures dampened the risk appetite of the investors.
Brent crude prices went up, supported by tight supplies due to OPEC+ supply curbs, recovering demand and a weaker U.S. dollar. The OPEC+ group is slowly unwinding record output cuts made last year.
Baltic Dry Index
The index rose during the week due to improved Capesize and Panamax activities.
The Indian Rupee fell against the greenback following an increase in global crude oil price.
The euro fell against the greenback on concerns that the U.S. Federal Reserve may start tapering its asset purchase program before the end of the year which may get followed by a rise in interest rates in the U.S.
The Sterling fell against the dollar on concerns over soaring natural gas prices and worries regarding the economic impact of a shortage of gas and petrol in Britain.
The Yen fell against the greenback on concerns that the U.S. Federal Reserve may start tapering its asset purchase program from Nov 2021.
The Week That Was...(27th Sep to 01st Oct 2021)
The Week Ahead...(04th Oct to 08th Oct 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.