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Weekly wrap-up: Market updates, news and insights for the week ending 02nd August, 2018
Publish date: 02nd November, 2018
News: Nifty bounces 116 points on Friday to close at all-time high of 11,361
Our perspective:
- The signs of the end of the trade war between China and the US played in the favour of markets as Chinese demand for commodities are now likely to be back.
- The US decision to grant India exemptions from stopping Iranian imports will also keep the trade deficit and the CAD in check and reduce the oil prices.
Related reads
What is dampening the Indian stock market?
Reasons why the Nifty is walking a tightrope
Everything you need to know about the longest US bull market
News: Rupee and bond yields show solidity and strength during the week
Our perspective:
- The rupee strengthened further to the 72.47/$ mark during the week after the end of the trade war hopes and toned-down Iranian sanctions led to exporters selling dollars.
- The bond yields also stabilized lower at around the 7.77% mark after the RBI committed to infuse Rs.40,000 crore in the form of OMOs into Indian money markets in November.
Related reads
4 questions you may have about Rupee Depreciation
Rupee at 70 – What should you do?
How does the Turkish currency crisis impact India?
News: China and the US have finally moved closer to ending their trade war
Our perspective:
- Xi and Trump have agreed to talks and a final decision on an end to the trade war is expected during the G-20 meet
- Both Trump and Xi have realized the futility of continuing the traded war as it was already hitting the Chinese growth and even the US was hardly benefitting due to higher inflation
- An end to the US-China trade spat will be a big bonus to emerging markets which substantially rely on China as the biggest consumer of commodity exports
Related reads
Indian markets – Caught in the trade war crossfire
5 indicators to gauge the intensity of the trade war
US-China trade face-off – Why should India be concerned
4 things to know about impact of trade wars on India
News: October sees the sharpest and biggest exit by FPIs from Emerging Markets
Our perspective:
- Money managers have pulled out nearly $17 billion from Indian equities in the last one month as a risk-off trade played out globally.
- The pressure on emerging market assets was an outcome of higher oil prices and the risk of a slowdown due to China slowdown. US rates continued to be hawkish.
- Indian markets have already seen outflows to the tune of Rs.100,000 crore in the last 10 months since the beginning of the year with nearly Rs.35,000 crore in October itself.
Related reads
Why foreign investments matter for India
Foreign buying does not mean rally any more
Indian shares are attractive to foreigners
4 questions you may have about rupee depreciation
News: Indian aviation losses could touch Rs.9,300 crore in FY-19 as per CRISIL
Our perspective:
- The irony is that these losses are occurring at a time when the global aviation companies are having their best year with total expected combined profits of over $30 billion.
- Indian aviation companies are plagued by tighter completion leading to price cuts and higher ATF prices putting further pressure on the spread between the RASK and CASK.
Related reads
The curious case of the Indian aviation sector
7 things to know about Indian aviation sector
Jet Airways in deep red for second consecutive quarter
Why we have a Buy call on Interglobe Aviation (Indigo)
News: India moves up to 77th rank in the Ease of Doing Business index
Our perspective:
- The ranking should be seen in perspective as India has moved from 142nd rank to 77th rank in a span of just 4 years since the current government took over
- The successful implementation of GST and the smooth conduct of the NPA resolution under the IBC have been key triggers for an upgrade in the rankings
Related reads
4 things to know about India’s growth prospects
Four things to know about Indian IT sector’s IP deals
4 measures the Indian government has taken to create jobs
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News: L&T reports a 23% growth in profits to Rs.2280 crore
Our perspective:
- The good news for L&T was that the improved profits were triggered by better execution of projects and a sharp growth in the services business
- International revenue share fell by 300 basis points due to strife in the Middle East but the company gives hints of a recovery in the capital cycle.
Related reads
Why we have a Buy call on Larsen & Toubro
Why we have a Reduce call on BHEL
5 key challenges faced by Indian banks
News: IL&FS board lays out restructuring plan for the road ahead
Our perspective:
- To begin with the newly constituted board under Uday Kotak has identified a total of 347 group companies and a total debt of nearly Rs.1 trillion in the books of IL&FS
- The next big challenge will be to either look at a partial or a total sale of IL&FS and also deciding upon the haircuts that the lenders and investors will have to take.
Related reads
IL&FS casts a long shadow over IndusInd Bank
How the infrastructure slowdown has hurt India
IL&FS credit downgrade sends ripples
7 things to know about corporate governance
News: Yuan touched a 10-year low during the week as the trade war roiled
Our perspective:
- The higher tariffs were dampening production in China and also hitting the creation of jobs which left the Yuan at its weakest level since the Lehman crisis
- A weak Yuan has larger implications for emerging markets like India as most currencies will also have to depreciate in sympathy with the Chinese Yuan due to its trade dominance.
Related reads
Indian markets – Caught in the trade war crossfire
US-China trade face-off – Why should India be concerned
4 things to know about impact of trade wars on India
Contagion effect on world markets
Is India decoupling from the global market trend?
News: Realty projects worth $63 billion hang fire due to the NBFC crisis
Our perspective:
- Most real estate developers who could not access funds from banks have been relying on NBFCs, but that source seems to have dried up
- It is estimated that this drying of NBFC funds could lead to several projects getting either delayed or stall unless the flow of working capital is back.
Related reads
Real estate sector to be badly hit if construction ban is prolonged
5 interesting things to know about Indian real estate
Why are NBFCs important in India?
News: Big pharma companies may return to double digit growth as per CRISIL
Our perspective:
- The pick-up in demand is likely to come from a weaker rupee and a revival in growth in the key US market for Indian pharma generics. Large companies could benefit more.
- US accounts for nearly 35% of total Indian pharma market and that is likely to come back into positive territory after 5 years of negative growth.
Related reads
Why we have a Sell call on Sun Pharma
Why we have a Buy call on Cipla
Why we have a Reduce call on Reddy Labs
Aurobindo Pharma – Spreading good vibes
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