During
the initial part of the week there was disappointment on the faces on market
participants as domestic bourses plunged significantly nearly 1,000 points in
the first two trading sessions of the week. However, the markets saw a sharp
recovery in the last two trading sessions. The S&P BSE Sensex settled 373
points higher on Friday at 38,091 owing to rupee recovering against the dollar.
In the last two trading sessions of the week, the 30-share index moved up
around 678 points, or 1.81 per cent, while the NSE's Nifty50 index added 227
points, or 2.01 per cent, to end at 11,515 levels. On a weekly basis, the
30-share index of BSE lost 299 points or 0.77 per cent while the Nifty50 index
shed 74 points or 0.63 per cent.
A
slew of encouraging macro numbers brought cheer to the investors on Dalal
Street. The headline inflation (CPI) data cooled off to a 10-month low of 3.69
per cent in August, while the wholesale price inflation (WPI) eased to a
four-month low of 4.53 per cent in August on softening of prices of food
articles, especially vegetables. That apart, industrial production (IIP) for
July grew at 6.6 per cent on the back of good performance by the manufacturing
sector and higher offtake of capital goods and consumer durables. Trade
deficit, too, narrowed to $17.4 billion in August as compared to $18.02 billion
in July, data showed.
A
high-level meeting chaired by Prime Minister Narendra Modi on Friday decided to
curb non-essential imports and increase exports, besides announcing
five-pronged measures as a knee
jerk reaction to increase dollar inflows into the country to fund and reduce
the current account deficit (CAD). The CAD rose to 2.4 per cent of the
country's gross domestic product (GDP) in the first quarter of 2018-19 from 1.9
per cent in the fourth quarter of 2017-18. These measures will increase dollar
inflows by up to US$10 billion in the country. The government decided to cut non-essential
imports and increase exports, Finance Minister Arun Jaitley told reporters
after the meeting, adding the measures would be announced in the next few days
after consultations with the ministries concerned. A long term sustainable
economic policy taking all the stakeholders in the picture will go a long way
to give right direction to the market rather than the frequent policy changes
as a knee jerk reaction.
Sectors and stocks
Rising
for the second straight session, sugar stocks on Friday surged up to 20 per
cent on the government's announcement of hike in ethanol price for blending in
petrol by 25 per cent. In the previous trading session, shares of sugar firms
had registered a rise of around 18 per cent. The government on Wednesday approved an over
25 per cent hike in the price of ethanol produced directly from sugarcane juice
for blending in petrol in a bid to cut surplus sugar production and reduce oil
imports.
Avadh
Sugar & Energy, Ponni Sugars (Erode), Magadh Sugar & Energy, Simbhaoli
Sugars, Rajshree Sugars & Chemicals, Dalmia Bharat Sugar & Industries
and Uttam Mills rose as much as 20 per cent each and hit their upper circuit
limits on the BSE. Shares of Shree Renuka Sugars surged 16.17 per cent and
Thiru Arooran Sugars jumped 15.63 per cent. K M Sugar Mills rose 14.04 per
cent.
The
Cabinet Committee on Economic Affairs raised the procurement price of ethanol
derived from 100 per cent sugarcane juice to Rs 59.13 per litre from the
current rate of Rs 47.13.
The
government's move of raising ethanol price for blending in petrol would help
sugar mills quickly release arrears of cane farmers, which stands at over Rs
13,000 crore. As much as 40 per cent of these dues are in Uttar Pradesh alone. Ethanol
so extracted would be doped in petrol to cut reliance on imports. The
government is looking at scaling up the blending to 10 per cent in the next
couple of years from 4-5 per cent now. However, we recommend a caution as not
every sugar Company will gain from these changes and many of them are under heavy
debt.
Global Markets
Rally
was witnessed across the on Friday as expectations grew that the United States
(US) and China would open new trade talks, while an interest rate hike in
Turkey supported the Turkish lira and global risk appetite. The MSCI All-Country
World index, which tracks shares in 47 countries, was up nearly half a percent
on the day after the start of trade in Europe. Led by technology and autos
stocks, the pan-European STOXX 600 index rose half a per cent, set for its best
weekly gains in seven weeks. US stocks closed higher Thursday, with the S&P
500 gaining for a fourth straight session on the back of strong technology
shares.
Ajcon’s view
Last
week, the domestic bourses see saw movement owing to volatility in rupee. However,
the recovery in rupee was cheered by the market in the last 2 days which led to
rally in domestic bourses. The Indian economy grew 8.2 percent in April-June
this year, the highest in two years, amid signs that households are buying
more and companies are adding capacities, shrugging off the disorderly effects
of the twin shocks of demonetisation and the goods and services tax (GST). Domestic
air passenger traffic, robust rail freight movement, rising sales growth of
passenger vehicles and strong consumer durables sales also point to a
turnaround in the greater household spending. Gross Fixed Capital Formation
(GFCF), a useful metric to measure corporate investment activity, grew 10.0
percent in April-June. The agriculture sector grew 5.3 percent, from 3 percent
in the same period last year, largely reflecting a strong Rabi or winter sown
harvest. The monsoon rains, critical for the summer-sown kharif crop, has been
slightly below normal this year so far, particularly in the grain bowl states
in north India, but the shortfall isn’t alarming enough to pull down growth in
the broader economy. India also cemented its status as the world’s fastest
growing major economy, ahead of China, which grew 6.7 percent in April-June
2018.
Going
ahead, we believe, progress of ongoing monsoons, rupee movement against the
dollar, volatility in oil prices, US Fed meeting on rate hike will keep
domestic bourses volatile. We believe that the investors can have a stock
specific approach. We still believe that there is significant value in midcaps
after the recent correction post implementation of ASM and announcement of LTCG
in Union Budget 2018-19. Midcap stocks did show some signs of bottoming out in
August but it will be difficult to say that the pain is over and stock selection
will be the key.
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