Indian Markets Follow Global Cues Over The Week

Indian markets this week saw 3 days of downward trading and 2 days of upwards moves. The cumulative of these moves was the Sensex and Nifty closing rather flat as compared to last week, higher by 0.05 per cent and 0.21 per cent respectively. Markets saw a heavy upward move today that compensated for the downward movement during the week. With last week’s movements were driven by changes on the domestic front, led by action by the government on long pending issues, political dynamism and other domestic trends, this week the market is being drive by the global environment on the lack of major domestic drivers.

On the domestic front, Monday saw the markets closing in red after previous Friday’s rally on the government giving a nod on FDI in retail regardless of Mamata Banerjee withdrawing support. The upward move was also supported by Samajwadi Party extending support to the UPA. After seeing efforts being made throughout markets worldwide on the monetary front, focus had shifted to fundamentals for this week. This weakened the global situation and coupled with news that Greece had a larger than expected budget shortfall, markets started moving downward.

This soon took a u-turn with domestic cues taking the forefront. The UPA government announced a debt restructuring package for the much troubled State Electricity Boards (SEBs) in accordance to which state governments would convert half of the debt into bonds while the rest would be restructured. The previous restructuring attempt in 2001 had failed implementation due to the absence of tariff hikes and reduction in power subsidies. Long term benefits over this move would be seen only if there is a revision seen in tariffs and if operational inefficiencies are worked on.

The following days were again dominated by global cues. While the markets turned downwards on Wednesday and Thursday, Friday saw a significant upside move, of 0.99 per cent for the Sensex and 0.95 per cent for the Nifty.

In the U.S., the week saw a series of movements due to data and statements. Significant amounts of data came in, in the U.S., giving a clearer picture about the economy. New home sales saw a slight decline from 374,000 in July to 373,000 in August. There was improvement seen on the employment front as well. U.S. Initial Jobless Claims were lower for this month at 359,000 as compared to the previous 385,000 and U.S. Continuing Jobless Claims reduced from 3275,000 to 3271,000. U.S. GDP estimates have been creating a boatload of pessimism in the markets with constant estimate revisions. It started with an estimate of 1.5 per cent which was revised to 1.7 per cent and then further revised to 1.3 per cent. With this U.S. markets closed the week lower in the range of 0.89 per cent and 1.23 per cent. What also dragged markets lower worldwide was when Fed’s Charles Plosser said QE3 risks may surpass benefits.

European indices were ruled by fresh concerns over the Greek situation in the beginning of this week dragging markets lower significantly. This trend though reversed with the announcement of the Spanish budget. This was followed by announcements over possible increase in taxes and reduction in spending to meet the demanding situation. With this, markets turned cheerful over positive steps towards recover giving a boost to the markets in Europe. On the other hand, in the UK, GDP figures saw no improvement YoY, with the figure remaining unchanged at 0.5. QoQ though, the reading came down to 0.4 for this quarter as against 0.5 in the previous quarter. Today also saw the release of PMI data which showed an improvement in Italy but a downfall in France. European markets ended lower in the range of 1.18 per cent and 2.51 per cent.

Asia was majorly driven by concerns over Japanese exports, which have been falling due to weak demand from China and the European Union. To add fuel to the fire, the dollar has been depreciating, making the yen stronger and in turn, making it more difficult for a revival in Japanese exports. With this the Nikkei has fallen 2.63 per cent this week. In the meanwhile, China announced the pumping of USD 60 billion in a move to increase liquidity which was taken positively by markets, the Shanghai Composite ending higher by 2.93 per cent.

The overall depreciation in dollar, strengthening in yen and the strengthening in rupee over the end of political inaction has caused a drastic appreciation in rupee that has been in the range of 3.27 per cent and 4.47 per cent for the 4 major currencies.

Crude saw a significant upward move during the week on the release of data in the U.S. of the weekly supply and inventory data of crude and gasoline that indicated a major decline.

On the domestic front, while the Sensex and Nifty ended the week flat, midcap and smallcap indices saw a significant upward move. Midcaps and smallcaps were up this week by 2.72 per cent and 3.06 per cent respectively. Among sectors, Consumer Durables, FMCG and Realty were the highest gainers and were up by 4.77 per cent, 4.00 per cent and 3.91 per cent respectively. At the same time, Oil & Gas, Metals and IT were the biggest losers, having lost 2.17 per cent, 1.41 per cent and 1.01 per cent respectively.

Among sectors, Power gained 2.95 per cent due to the government’s announcement of a debt restructuring package for State Electricity Boards (SEBs) as mentioned above. Auto has been gaining some momentum due to the festive season. This usually brings in higher sales and sees a series of new launches, boosting stocks higher.

The appreciating rupee has been taking a toll on the export dependent IT industry, pushing IT lower by 1.01 per cent. Though Healthcare has gained 2.32 per cent in the week, it has come under pressure due to Group of Ministers (GoM) sending their recommendation to the Cabinet within a week for approval to bring 348 drugs in National List of Essential Medicines for pricing controls. These drugs account to total sales of Rs.29,000 crore and form 60 per cent of the domestic markets, bringing tremendous amounts of pressure on the industry.

United Spirits was the top gainer on the back of Vijay Mallya being in talks with global spirits major Diageo to structure a deal to offload a strategic stake in United Spirits. Power companies too gained because of the government’s debt restructuring package sending Adani Power, JSW Energy and Torrent Power up by 12.69 per cent, 12.38 per cent and 11.62 per cent respectively.

On the other hand, SAIL and Sterlite were lower by 7.67 per cent and 4.65 per cent due to their moving out of the Nifty and being replaced by UltraTech Cement and Lupin.

Due to strengthening global cues taking a large effect on markets worldwide, we expect the trend to stand for Indian markets as well. There have been drastic moves in the U.S., Europe and Asia and they are likely to define the direction of Indian markets next week.