Stock Markets – 5th Oct – 11th Oct

India
Domestic markets saw massive tailwinds starting with the Punjab and Maharashtra cooperative bank scam of Rs 4,355 crore. The funds given out to Housing Development and Infrastructure group firms (HDIL) appear to have been misappropriated leading to raids and a lot of arrests taking place. Following the discovery, the maximum deposit allowed to customers in a day was fixed at ₹10,000 and subsequently raised to ₹25,000 as of October 3rd. However, many depositors held a silent protest outside the RBI Office at Bandra Kurla Complex on Sunday (September 29). The protestors vowed to not participate in the state assembly election, which is scheduled on October 21, until the current fiasco is fixed. “The government can implement Article 370 in no time, then what is stopping them from helping 16 lakh bank depositors of PMC bank? “ asked one distressed customer.

Turmoil in the banking sector continued with Lakshmi Villas bank, which was set to merge with India bulls housing finance, being placed under the prompt corrective action by the RBI which will put India bull’s banking licence on hold. The central bank possibly saw this merger as an NBFC taking over a bank and rejected it. YES Bank saw massive volatility with the stock falling by 30% on account of Rana Kapoor’s pledged shares of over 100 million being sold in the open market, however the stock recovered its losses the following day.

RBI slashed interest rates by 25bps and maintained its stance of being Accommodative.

The governments disinvestment program has been approved with stakes in BPCL, shipping crop could be sold while IRCTC witnessed a strong demand and massive oversubscription.

On 30 September, the group of secretaries on disinvestment gave its approval for to sell government’s entire 53.29 per cent stake in BPCL, which is likely to be completed by March 31, next year. Moody’s (The international Credit Rating Agency) said the proposed stake sale in BPCL would remove the company’s links and prompt bond redemption, and will likely downgrade it to Ba1.

India’s industrial output (IIP) slipped from 4.3 percent in July to -1.1 percent (MoM) according to data released by the Central Statistics Office. A reason could be the fact that fifteen out of the twenty-three industry groups in the manufacturing sector have shown negative growth during August 2019. This is probably the biggest indicator of the economic slowdown. Another major indicator could be the extreme volatility that the Indian markets have been showing lately. As of 7th of October, the Indian stock market fell for the sixth consecutive day as market sentiments kept going downhill. The Sensex ended 141 points lower at 37,531 while the broader NSE Nifty closed down 0.43% at 11,126.40. In six days, the Sensex suffered a loss of 1,457 points or 3.7%, wiping out over ₹6 lakh crore of investor wealth. Ironically, investor wealth grew to over ₹7 lakh crore late in September when the finance minister announced a corporate tax slash. Essentially over the course of seventeen days, the Indian stock market gained and lost over ₹6 lakh crore of investor wealth.

Bulgarian economist Kristalina Georgieva became the first leader from an emerging market to hold the position of the chief economist at the International Monetary Fund (IMF). In her inaugural address on Tuesday, said that the global economy was witnessing “synchronized slowdown” and its effect is “more pronounced” in emerging markets such as India and Brazil. She blamed trade tensions weakening manufacturing and investment activities worldwide. The IMF has pared down its 2019-20 growth forecast for India in July by 30 basis points to 7%, expecting weaker domestic demand to limit an economic recovery.

On Friday, 4th of October, The Reserve Bank of India released the results of five feedback-based surveys:
1. Consumer Confidence Survey (CCS) – Consumer confidence dipped to a six-year low as over 52.5% of the total respondents feel that the employment situation in the country has worsened and will only get worse in the coming year. The survey, conducted in 13 major cities also revealed that the Current Situation Index (CCI) also fell into 89.4 in September from 95.7 recorded in the July round of survey, the data showed. In September 2013, it had touched 88.

2. Inflation Expectations Survey of Households (IESH) – The survey conducted in 18 major cities revealed that the median inflation expectations of households rose to 8.0% in September from 7.6% in July. More households expect general prices to rise over the three months ahead and a year ahead horizons than in July 2019.

3. Survey of Professional Forecasters on Macroeconomic Indicators: –
➢ Real gross domestic product (GDP) is likely to grow at 6.2 per cent in 2019-20 and by 7.0 per cent in 2020-21.
➢ Real gross value added (GVA) is expected to grow by 6.0 per cent in 2019-20 and further by 6.7 per cent in 2020-21, supported by upticks in industrial and services sector activity.
➢ Headline consumer price index (CPI) inflation is expected at 3.3 per cent in Q2:201920, gradually increasing to 4.0 per cent in Q2:2020-21.
➢ The growth of merchandise exports and merchandise imports during 2019-20 are expected at 1.5 per cent and 0.5 per cent, respectively, and both are expected to improve in the next year.
➢ The current account deficit is expected at 1.9 per cent of GDP at current market prices in 2019-20 and at 2.0 per cent in 2020-21.
➢ The Indian rupee is likely to remain stable at around ₹72.0 per US Dollar till Q2:2020-21.

4. Industrial Outlook Survey of the Manufacturing Sector – The survey encapsulates qualitative assessments of the business climate by companies in India’s manufacturing sector for Q2:2019-20 and their expectations for Q3:2019-20. Responses were received from 481 companies:
➢ Respondents assessed that there was a slump in order inflows, output and employment conditions in Q2:2019-20.
➢ On exports and imports, there was waning optimism in Q2:2019-20.
➢ Sentiments on the overall financial situation reflected lower optimism on availability of finance from internal accruals, bank finance and overseas sources in Q2:2019-20.
➢ The Business Expectations Index (BEI) edged down from 112.8 in Q2:2019-20 to 102.2 in Q3:2019-20.

5. OBICUS Survey on the manufacturing sector – The Order Books, Inventories and Capacity Utilisation Survey provides a snapshot of demand conditions in India’s manufacturing sector.
At the aggregate level, Capacity Utilization declined to 73.6 per cent in Q1:2019-20 from
76.1 percent in Q4:2018-19, broadly tracking the de-trended index of industrial production
(IIP).

Finally, we’ll end this week’s report with a table that lists various institutions around the globe and by how much they’ve downgraded India’s growth projection owing to the economic slowdown that the nation is witnessing:

International
Foreign markets witnessed some recovery with signs of a resolution in the US-china trade war after the Chinese foreign minister stated that the United states has shown good will by waving of tariffs on Chinese products. Us presidents remarked that a trade deal with china could happen soon resulted in price of safe haven assets (such as gold) falling. Facebook Inc slipped by 1.8% as the US justice department decided to open antitrust investigations against the company, the stock was amongst the largest drags on the NASDAQ.

The FTSE 100 index of leading shares endured its worst drop in well over three years on Wednesday, shedding more than 3pc amid a global stock market sell-off. Oil prices have been falling as the estimated supply shock in Saudi seems to have been resolved with WTI futures making its largest losses in the past 2 months this week.

The trade talks between US and China scheduled on October 10th went fairly well according to US President Donald Trump who said, “Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past.” Following this, US Index Dow Jones Industrial Average as well as S&P 500 rose by 1.5%. Nasdaq jumped 1.7% while big tech shares such as Facebook, Amazon and Google-parent Alphabet all gained more than 1%. Bank stocks also gained steam as Bank of America and J.P. Morgan Chase rose more than 1.5% each. Apple jumped 1.6% and hit an all-time high.

Reports suggest that the world’s two largest economies could agree to a partial agreement on issues such as currency and agriculture buying, and it could also include a delay in the tariff hike scheduled for next week.

Washington is seeking pledges from Beijing to refrain from currency manipulation and more agriculture buying. In return, the U.S. would offer a suspension of a tariff increase. Trump administration plans to allow the sale of some supplies to Huawei, a giant telecom company in
China. The administration restricted sales to Huawei in May due to concerns about national security.

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