Markets snap five week gaining streak

It turned out to be a disappointing week of trade for Indian equity benchmarks with frontline gauges snapping five weeks winning streak, as traders remained concerned over China’s Evergrande Group's debt crisis and widening power shortage in China. Key gauges made muted start to the week as traders got anxious with RBI’s data showing that the country's foreign exchange reserves declined by $1.47 billion to $639.642 billion in the week ended on September 17. Traders also remain concerned with report stating that as many as 470 infrastructure projects, each worth Rs 150 crore or more have been hit by cost overruns totalling more than Rs 4.37 lakh crore. Key gauges started moving southward after the World Bank said that East Asia and Pacific region's recovery has been undermined by the spread of the COVID-19 Delta variant, which is likely slowing economic growth and increasing inequality in the region. Economic activity began to slow in the second quarter of 2021, and growth forecasts have been downgraded for most countries in the region. Markets extended southward movement, as traders remained cautious with Rating agency Crisil’s statement that States' indebtedness will remain high this fiscal at 33 per cent, which is only a notch below the record high of 34 per cent of their gross domestic products in FY21, as tax buoyancy will be offset by higher revenue expenditure and capital outlays. Some concern also came as finance ministry stating that India’s external debt rose modestly by 2.1 per cent year-on-year to $570 billion as of March-end 2021, notwithstanding the COVID-19 pandemic. It said reserves to external debt ratio, however, increased to 101.2 per cent from 85.6 per cent during the same period, thereby consolidating the country’s position as a net creditor to the world. Selling on final day of trade take domestic bourses below their crucial 17,550 (Nifty) and 58,800 (Sensex) levels, as India's external debt stood at $571.3 billion at end-June, recording an increase of $1.6 billion over its level at the end of March 2021. Traders overlooked the private survey stating that India’s manufacturing activity recovered slightly in September, from a slowdown in growth in the previous month of August as strengthening demand conditions amid the easing of COVID-19 restrictions boosted sales.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1282.89 points or 2.14% to 58,765.58 during the week ended October 01, 2021. The BSE Midcap index gained 29.36 points or 0.12% to 25,224.20 and Smallcap index surged 192.28 points or 0.69% to 28,215.62. On the sectoral front, S&P BSE Power was up by 191.30 points or 6.35% to 3,204.21, S&P BSE PSU was up by 462.87 points or 5.77% to 8,485.29, S&P BSE Oil & Gas was up by 729.84 points or 4.14% to 18,368.71, S&P BSE Metal was up by 542.43 points or 2.74% to 20,306.43 and S&P BSE Consumer Durables was up by 916.42 points or 2.25% to 41,692.90 were the top gainers on the BSE sectoral front, while S&P BSE TECK was down by 858.40 points or 5.34% to 15,221.83, S&P BSE Information Technology was down by 1,879.09 points or 5.21% to 34,200.09, S&P BSE Finance was down by 182.19 points or 2.11% to 8,456.98, S&P BSE BANKEX was down by 738.01 points or 1.71% to 42,507.48 and S&P BSE Capital Goods was down by 443.71 points or 1.68% to 25,912.59 were the top losers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 321.15 or 1.80% to 17,532.05. On the National Stock Exchange (NSE), Bank Nifty was down by 604.40 points or 1.60% to 37,225.90, Nifty IT was down by 2322.65 points or 6.26% to 34,780.60 and Nifty Next 50 was down by 558.00 points or 1.30% to 42,513.65. On the other side, Nifty Mid Cap 100 was up by 253.25 points or 0.84% to 30,396.85.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 41,107.29 crore and gross sales of Rs 41,489.95 crore, leading to a net outflow of Rs 382.66 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 10,391.56 crore against gross sales of Rs 5,024.46 crore, resulting in a net inflow of Rs 5,367.10 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 152.67 crore and gross sales of Rs 220.37 crore, leading to a net outflow of Rs 67.70 crore.

Industry and Economy

Former Reserve Bank of India (RBI) Governor D Subbarao has stressed on the need to accelerate India’s economic growth rate and make sure that this benefit of growth is shared, even as he said that unemployment has taken a form of ‘crisis’ in the country. Subbarao further said the organised sector is shedding jobs and the labour force is moving from high productive sector to the unorganised sector. According to Subbarao, faster growth is necessary but at the same time it is not sufficient, and there is a need to address the issue of rising inequality as well. Subbarao explained that economic growth comes from private consumption, private investment, government expenditure and net exports.

Outlook for the coming week

In the passing week, Indian markets displayed weak performance with Nifty and Sensex settling lower by over 300 and 1200 points respectively. Investors’ sentiments were fretted over China Evergrande Group's debt crisis and widening power shortage in China.

The coming week will mark the start of July-September quarter earnings season, with IT bellwether TCS. The company is going to reporting their Q2 numbers on October 8.

Markets participants will also be looking forward Markit Services PMI, schedule to be release on October 05. The IHS Markit India Services PMI jumped to 56.7 in August of 2021 from 45.4 in the previous month, and far above market expectations of 48.5.

Meanwhile, RBI is forecast to raise the reverse repo rate - in the first big step towards policy normalisation as it looks to sponge the excess liquidity out of the system amid better prospects for the domestic economy with the US Federal Reserve likely to cut back on its bond purchases by the end of this calendar year. The six-member monetary policy committee (MPC) of the RBI will meet for three days from October 6.

On the global front, investors will be eyeing macro-economic reports from world’s largest economy, United States, starting with Factory Orders on October 04 followed by Balance of Trade, Redbook, Markit Services PMI on October 05, Initial Jobless Claims on October 07 and Baker Hughes Total Rig Count on October 08.

Top Gainers

  • Coal India up by 12.76% was the top gainer on Nifty for the week - Coal India will augment fuel supply to power utilities of the country to rein in the lowering coal stocks and build them up to adequate levels. The development assumes significance in the wake of power plants across the country grappling with coal shortages. For the past few days, the company has pushed up its offtake to power plants to 1.4 million tonne (MT) per day. Also, Coal India is planning to fund a mock-up coal mine at National Science Centre Delhi, a unit of National Council of Science Museums (NCSM).
  • NTPC up by 10.86% was another top gainer on Nifty for the week - NTPC’s arm -- NTPC Renewable Energy (NTPC REL) has signed its first Green Term Loan agreement of Rs 500 crore at a very competitive rate with a tenor of 15 years with Bank of India for its 470 MW solar project in Rajasthan and 200 MW solar project in Gujarat. A green loan is a type of loan instrument that enables borrowers to finance projects that have an environmental impact. Also, NTPC has received shareholders’ nod to raise up to Rs 18,000 crore through the issuance of bonds or debentures.

Top Losers

  • Tech Mahindra  down by 9.88% was the top loser of the week on Nifty - IT companies stocks came under pressure as IT stocks on Wall Street witnessed a massive profit booking. The technology stocks are on a bear run after the US bond yields spike to 1.54%, the highest in over 5 months while oil hits $ 80. Meanwhile, Tech Mahindra has partnered with the Cybersecurity Centre of Excellence, part of Data Security Council of India to drive cybersecurity innovation ecosystem in India.
  • Divi's Lab down by 7.29% was another top loser of the week on Nifty - Divi's Lab witnessed profit booking after recent gains. The company had reported a rise of 13.22% in its consolidated net profit attributed to shareholders at Rs 557.11 crore for Q1FY21 as compared to Rs 492.06 crore for the same quarter in the previous year. Also, Most of the pharma stocks witnessed selling pressure in line with weakness in equity markets amid weak global cues.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 17,943.50 on September 27 and lowest level of 17,452.90 on October 1. On the last trading day, the Nifty closed at 17,532.05 with weekly loss of 321.15 points or 1.80 percent. For the coming week, 17,342.13 followed by 17,152.22 are likely to be good support levels for the Nifty, while the index may face resistance at 17,832.73 and further at 18,133.42 levels.

US Market

The U.S. markets ended lower during the passing week as Treasury yields rose three-month highs and lawmakers in Washington continued their budget stalemate. The turnaround by yields came after Federal Reserve Chair Jerome Powell warned inflation could be held up longer than previously thought due to supply chain problems. Powell said the current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end. Traders were keeping an eye on Washington after Senate Majority Leader Chuck Schumer, D-N.Y., announced an agreement on a stopgap spending bill to avoid a government shutdown. The proposed legislation, which would fund the government through December 3rd, also includes spending on hurricane relief and Afghan refugee resettlement. Schumer said the Senate would vote on the legislation, although the bill would still need to pass the House before a midnight deadline.

Further, adding to the negative sentiment on markets, the Conference Board released a report unexpectedly showing a continued deterioration in U.S. consumer confidence in the month of September. The Conference Board said its consumer confidence index tumbled to 109.3 in September from an upwardly revised 115.2 in August. The decrease surprised participants, who had expected the index to inch up to 114.8 from the 113.8 originally reported for the previous month. Meanwhile, first-time claims for U.S. unemployment benefits unexpectedly increased for the third straight week in the week ended September 25th, according to a report released by the Labor Department. The report said initial jobless claims edged up to 362,000, an increase of 11,000 from the previous week's unrevised level of 351,000. The uptick surprised participants, who had expected jobless claims to dip to 335,000.

Growth in Chicago-area business activity continued to slow in the month of September, according to a report released by MNI Indicators. MNI Indicators said its Chicago business barometer slipped to 64.7 in September after slumping to 66.8 in August, although a reading above 50 still indicates growth. Street had expected the business barometer to edge down to 65.0. However, economic growth in the U.S. accelerated by slightly more than previously estimated in the second quarter, the Commerce Department revealed in revised data released. The Commerce Department said real gross domestic product shot up by 6.7 percent in the second quarter compared to the previously reported 6.6 percent spike. Street had expected the jump in GDP to be unrevised. The upwardly revised GDP growth in the second quarter reflects a modest acceleration from the 6.3 percent surge seen in the first quarter.

European Market

European markets ended passing week in red. The start of the week was on a higher note, as French consumer confidence improved to a three-month high in September. The survey results from the statistical office Insee showed that the consumer sentiment index rose more-than-expected to 102 in September from 99 in August. The reading was forecast to rise to 100. The latest score was the highest since May. Besides, German consumer confidence is set to rise in October underpinned by strong improvement in income prospects and propensity to consume. The survey results from the market research group GfK showed that the forward-looking consumer confidence index rose to +0.3 points from -1.1 in September. The score was forecast to fall further to -1.5. The consumer climate index has reached its highest level since April 2020.

However, markets cut gains towards end of the week, after Sweden's economic confidence weakened in September. The data from the National Institute of Economic Research showed that the economic tendency indicator fell to 119.9 in September from 120.6 in August. The consumer confidence index decreased to 107.3 in September from 107.9 in the previous month. Further, UK households' overall perception about financial wellbeing weakened in the third quarter despite the rise in household income from employment. The data published by IHS Markit showed that the Scottish Widows household finance index fell to 44.0 in the third quarter from 44.7 in the second quarter.

The inflation front, Spain's consumer price inflation accelerated for a third straight month in September to its highest level in 13 years. The preliminary data from the statistical office INE showed that the flash consumer price index rose 4.0 percent year-on-year following a 3.3 percent increase in August. The latest annual inflation rate was the highest since September 2008. Besides, Hungary's producer price inflation eased in August. The figures from the Hungarian Central Statistical Office showed that the producer price index rose 14.4 percent year-on-year in August, following a 14.8 percent increase July.

Asian market

Asian equity benchmarks, barring Hang Seng Composite Index, ended in red terrain during the passing week, following the firmly negative cues from Wall Street, as traders reacted to rising inflation worries and renewed concerns about the impact of Chinese real estate major Evergrande's debt woes. Traders also remain concerned about the coronavirus situation in the region and other countries, particularly the U.S., which is hindering economic activity. Seoul stocks lost ground even as latest survey from the Bank of Korea showed consumer confidence in South Korea picked up steam in September, with a Composite Consumer Sentiment Index score of 103.8 - up from 102.5 in August.

Japanese Nikkei edged lower by around five percent as retail sales and factory activity data disappointed and the ruling Liberal Democratic Party appointed a new leader, who is set to become the country's new prime minister. The latest survey from Jibun Bank showed the manufacturing sector in Japan continued to expand in September, albeit at a slower rate, with a manufacturing PMI score of 51.5. That's down from 52.7 in August although it remains above the boom-or-bust line of 50 that separates expansion from contraction. Besides, the value of retail sales in Japan was down a seasonally adjusted 4.1 percent on month in August. Some concern also came as the Ministry of Economy, Trade and Industry the value of industrial output in Japan was down a seasonally adjusted 4.3 percent on month in August. Meanwhile, members of the Bank of Japan's monetary policy board felt that while the country's economy continues to improve, it remains in dire straits because of the Covid-19 pandemic.

Chinese Shanghai too ended lower by over a percent after the release of mixed economic data. Activity in China's manufacturing sector contracted in September due to low sentiment of high energy-consuming industries, but the services sector bounced back strongly from coronavirus outbreaks last month. Some concern also came as China's industrial profits continued to grow at a slower pace, as higher input prices as well as a shortage of materials lifted production costs. Industrial profits increased 10.1 percent year-on-year in August following 16.4 percent annual growth in July.