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Weekly wrap-up: Market updates, news and insights for the week ending 12th October
Publish date: 12th October, 2018
News: Nifty closes on a positive note after a week of virtual carnage
Our perspective:
- The Friday closing was largely driven by short covering and some selective buying even as the global overhang of US treasuries and the Italian default are an overhang
- The FIIs are already in risk-off mode with nearly $3 billion worth of equity and debt sold during the first 8 trading days of the month of October.
Related reads:
What is dampening the Indian stock market?
Reasons why the Nifty is walking a tightrope
Everything you need to know about the longest US bull market
News: Rupee and bond yields show signs of normalcy during the week
Our perspective:
- The rupee / dollar equation remained steady, even if beyond the 74/$ mark. The RBI promise of NRI bond issue and higher import duties, allayed rupee fears.
- Bond yields tapered to below the 8% mark after the RBI infused liquidity at the short end. Bond yields also got a boost from SBI supporting NBFCs leading a sense of relief in bonds.
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: Global markets saw deep correction during the week
Our perspective:
- US stocks took a sharp hit during the week after the 10-year US Treasury yields stayed consistently above 3.2% leading to fears of asset re-allocation against equities.
- Europe has a larger problem after Italy refused to back down on austerity. Italy has threatened to secede from the Euro leading a crash in Italian bonds
- Asian markets have been among the worst in terms of equity returns and dollar strength. Asian markets got roiled by signs of an economic slowdown in China
Related reads:
5 reasons why US Fed policy affects you
6 things to know about India’s correlation with global markets
6 global factors to keep an eye on
News: TCS flatters the street with its second quarter results
Our perspective:
- The big take-away from the TCS results was that it had benefited from better traction from digital clients as well as the dividends of a weak rupee
- The digital business is now accounting for 28% of revenues which explains why the operating profit margin of the company expanded by 150 bps to 26.50% this quarter.
Related reads:
Will TCS outperform Infosys in terms of Q2 RESULTS?
Four things to know about TCS Q1 results
Why the TCS buyback presents a Buy opportunity
News: RBI now relies more on forward market intervention rather than spot markets
Our perspective:
- RBI intervention in the spot market entail selling dollars and therefore it automatically also leads to absorption of domestic liquidity creating a problem in the money market.
- In the recent month the total RBI selling in the forward market has been nearly $5 billion while its spot selling of dollars was just about $2.3 billion.
Related reads:
Why RBI’s surprising decision to not hike rates makes sense
Rupee fall against dollar: what can the government do?
Is hiking import duty the best way to stem the falling rupee
News: Government cuts excise on Aviation Turbine Fuel from 14% to 11%
Our perspective:
- This move should be positive for airline companies as ATF accounts for more than 60% of the operating cost of an airline. This gives a hedge against predatory pricing.
- Experts believe that the net impact may not be too high because it only reduces the impact of the import duties hike on ATF announced in September.
Related reads:
The curious case of the Indian aviation industry
7 things to know about Indian aviation industry
Why we have a Buy call on Interglobe Aviation (Indigo)
News: Relief for NBFCs as banks pledge enhanced lending support to NBFCs
Our perspective:
- The good news for NBFCs came with SBI tripling its lending support to NBFCs from Rs.15,000 crore to Rs.45,000 crore. Other banks have also followed suit.
- With bond markets too pricey, NBFCs would have struggled to roll over their loans which are due for repayment. This move should come as a relief to NBFCs.
Related reads:
Five things to know about the housing finance sector
Finding value in mid cap stocks
What is troubling India’s financial market?
Are the troubles over for the Indian banking sector?
News: Equity funds benefit from flows, liquid and income funds see a run
Our perspective:
- Equity funds have added a total of 65 lakh folios in the first half of this fiscal after adding 1 crore folios each in the last 2 years. Monthly equity SIPs are in excess of $1 billion now.
- However, the IL&FS fiasco resulted in a massive redemption pressure from money market funds and income funds to the tune of nearly Rs.3.20 trillion.
Related reads:
After scary September, will it be OK October?
Finding value in mid cap stocks
5 costs that eat into investment returns
News: India plans to increase its import of oil from Iran
Our perspective:
- It remains to be seen how the US reacts since the US sanctions on Iran take effect from November 05th which virtually bars any banking relationship or dollar payments
- However, India could have the option of paying for Iranian oil in rupees or as part of the rice for oil scheme. Iran is the largest and the most economical supplier of oil to India.
Related reads:
How crude oil prices and Iran dilemma will impact India
Emerging markets take a beating on oil; here is what you need to know
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