On a weekly basis, Sensex gained
0.81 per cent while NSE's Nifty added 1 per cent. The last week
witnessed lot of action on the political front and change in RBI chief. BJP was
voted out of states in Chhattisgarh, Rajasthan and Madhya Pradesh (a tight battle
witnessed with Congress managed to win with support of allies). However, in
Mizoram – MNF outperformed both Congress and BJP. Telangana too was dominated by
TRS. To our surprise, domestic bourses have not been affected much after the
assembly election results. On the other hand, new RBI chief – Shaktikanda Das
was appointed. Strong IIP and better WPI and CPI lent some support to the
market. India's WPI inflation, which is calculated on wholesale prices, fell to
4.64 percent in November 2018, from 5.28 percent in October on lower power and
fuel inflation and food deflation. However, November WPI core inflation was at
4.8 percent against 5.1 percent, MoM. On a weekly basis, the rupee depreciated
1.53 percent (Rs 1.09) against the dollar as it ended at 71.89 on December 14
against December 07, closing of 70.80 against the dollar.
Reserve
Bank of India (RBI) Governor Shaktikanta Das chaired his first board meeting on
Friday, discussing issues ranging from governance at the central bank to
liquidity in the financial system. The board did not arrive at any decision but
held extensive discussions on the governance structure in the RBI and the
liquidity situation of non-banking financial companies (NBFCs) — two key areas
of concern flagged by the finance ministry recently, sources said. “Good
meeting of the RBI central board. Wide-ranging issues discussed,” Das tweeted.
On the governance framework, the board decided it would require further
examination, according to the RBI’s statement. According to media reports, there
was no discussion on the prompt corrective action (PCA) framework, which the
government had asked the RBI to consider revising and bring some public sector
banks (PSBs) out of it. The Board for Financial Supervision, led by the RBI
governor, is expected to review the PCA framework in its next meeting. At
present, 11 PSBs and one private bank are under the PCA framework and the
government feels that it is affecting the credit flow. Two presentations were
made by Economic Affairs Secretary Subhash Chandra Garg — one on the
government’s proposal for governance reforms in the RBI and the other on the
banking system, throwing light upon banks’ financials, credit flow and
non-performing assets (NPAs). Financial Services Secretary Rajiv Kumar did not
attend the meeting. “Both the government and the central bank will reconcile
their notes (on the RBI’s governance) and come back to the board in the next
meeting. There was no commitment, though, from the new governor on whether
governance reforms in the RBI were needed or not,” the person cited above said.
The RBI issued a statement after the four-hour meeting. “The board reviewed,
inter alia, the current economic situation, global and domestic challenges,
matters relating to liquidity and credit delivery to the economy, and issues
related to currency management and financial literacy,” it said. The next
central board meeting is likely to be held before the upcoming Budget in
February 2019.
Sectors and stocks
The Supreme Court on Friday
refused to order a probe into India’s purchase of French warplanes, blunting
the opposition Congress party’s allegation that Dassault Aviation SA
was forced to pick an Ambani firm as a local partner. Little over an hour
later, the Indian government told the court it would approve Reliance
Communications Ltd.’s airwaves sale in two days, a deal that Ambani’s
indebted operator badly needs to stave off bankruptcy. The two developments
sent shares of Reliance Naval and Engineering Ltd. and Reliance
Communications soaring, boosting the market capitalization of five large
listed Ambani firms by $68 million on the day. This is a relief for
investors who had seen these stocks lose $4 billion this year through Thursday as the
group was dogged by insolvency lawsuits, hurdles to asset sales and allegations
of government nepotism. Reliance Naval closed 15.7 per cent higher in
Mumbai trading on Friday, while Reliance Communications climbed as
much as 7.1 per cent before closing 2.3 per cent higher. Anil Ambani, younger
brother to Asia’s richest person Mukesh Ambani, welcomed the court verdict on
the Dassault controversy. It established “the complete falsity of the wild,
baseless and politically-motivated allegations leveled against Reliance
Group and me personally,” he said in an emailed statement.
On Friday, Shares of telecom services
provider such as Bharti Airtel and Vodafone Idea have rallied by up to 6% on
BSE in an otherwise subdued market after Telecom Disputes Settlement and
Appellate Tribunal (TDSAT) quashes Trai's predatory pricing rule. Bharti Airtel
has rallied 10% to Rs 333, while Vodafone Idea climbed 8% to Rs 37.60 on BSE in
the intra-day trade. “Telecom Disputes Settlement and Appellate Tribunal
(TDSAT) on Thursday set aside sector regulator Trai's rule on predatory pricing
for lack of transparency in the guidelines over determining market share and
rates of services,” the PTI report suggested. The move comes as a major relief
to Bharti Airtel, Vodafone and Idea Cellular (Now Vodafone-Idea Ltd) which had
in March challenged the amendment made by Trai in the Telecommunication Tariff
order, added report.
Crude oil
Oil prices slipped on Friday
after China reported slower economic growth, pointing to lower fuel
demand in the world's biggest oil importer, although market sentiment
was supported by supply cuts agreed last week by major crude producers.
Benchmark Brent crude was down 30 cents at US$61.15
per barrel by 1100 GMT, on course for a decline this week of around 1 percent.
U.S. light crude was 25 cents lower at US$52.33.
China, the world's No.2 economy, on Friday
reported some of its slowest growth in retail sales and industrial
output in years, highlighting the risks of the country's trade dispute with
the United States. Chinese oil refinery throughput in November
fell from October, suggesting an easing in oil demand, though runs were 2.9
percent above levels a year earlier.
Concerned by mounting oversupply, the
Organization of the Petroleum Exporting Countries and other oil
producers including Russia agreed last week to reduce output by
1.2 million barrels per day (bpd), or more than 1 percent of global demand.
Global markets
Stocks
worldwide tumbled on Friday after weak economic data from China and Europe
fanned concerns of a global economic slowdown and left investors fretting over
the wider impact of a still-unresolved Sino-US trade dispute. The MSCI
All-Country World Index, which tracks stocks across 47 countries, was down half
a per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan
fell 1.5 percent. Japan’s Nikkei, also dragged down by the country’s weak
tankan sentiment index, dropped 2.0 per cent.
US equity benchmarks failed to recover from
the strong sell-off that was seen at the start of December. Additionally, the
yield on US 10-year continued to build on slower growth pricing for 2019 at
play. However, the dollar continued to stay strong as the euro failed to
recover on the back of a dovish ECB and increasing geopolitics uncertainties in
Europe. EMs took cognizance of this risk-off tone and MSCI EM equity &
forex closed almost flat for the week.
FIIs paused in their buying across key EMs.
Outflows in the vicinity of US$100 million were seen from Malaysia, South Korea,
and Thailand. Taiwan and Indian saw outflows of almost US$500 million each.
Ajcon’s view
With the state election results and
uncertainty at RBI being over, the market would now track global cues. We
believe Q2FY19 earnings season has been mixed bag but Q3FY19 could be much
better. Event-wise, the upcoming FOMC meeting on December 20 has become the
most important meeting in a long while. Domestically, with CPI inflation
hitting 17th month low, the new RBI Governor, may take interest in cutting interest
rates to boost market sentiments. We do expect volatility as the Central Government
may resort to populist measures to gain back popularity amongst the rural
community which may be negative for the economy in the long term. With
crucial assembly elections (which were considered as semi finals to Lok Sabha
elections in May 2019) results out, the question now comes to our mind as to
which party manages to win the General elections. It may be difficult for both
major parties BJP and Congress to get majority. Street participants would not
prefer a coalition government as decision making and execution becomes
difficult in coalition regime for obvious reasons.
The strategy at present should be to invest
in phased manner only in companies which are not connected to any political
party and have a robust business model backed by quality management especially
on the corporate governance front. We would suggest investors to have a look at
Pharma MNCs and Private Insurance Companies at the current moment.
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