News U Can Use February 22, 2019
2 The Week that was 18 th February to 22 nd February
Indian Economy Foreign direct investment (FDI) into India shrank 7% to $33.49 billion during Apr-Dec in FY19, according to commerce and industry ministry data. Foreign fund inflows during Apr- Dec FY18 stood at $35.94 billion. The sectors that received the maximum foreign investment during in the nine months of the fiscal are services ($5.91 billion), computer software and hardware ($4.75 billion), telecommunications ($2.29 billion), trading ($2.33 billion), chemicals ($6.05 billion), and the automobile industry ($1.81 billion). Singapore was the largest source of FDI during Apr-Dec FY19 with $12.97 billion inflow, followed by Mauritius ($6 billion), the Netherlands ($2.95 billion), Japan ($2.21 billion), U.S. ($2.34 billion), and the U.K. ($1.05 billion). According to a major global credit rating agency, Indian corporate entities might witness a slowdown in revenue growth over the next 12-24 months. The rating agency is of the view that the pending general elections might give rise to additional risks for the Indian corporates as a change in administration may trigger an increase in government spending which may push up borrowing costs and result in an increase in domestic inflationary pressures. According to media reports, the Ministry of Finance will infuse Rs. 48,239 crore in 12 staterun banks in this fiscal. The objective of the move is to help the banks maintain regulatory capital requirements and finance growth plans. The total amount of capital infusion with this funding will thus increase to Rs. 1,00,958 crore of the planned recapitalisation of Rs 1.06 lakh crore for the state run banks in this fiscal. 3
Indian Equity Market Domestic Equity Market Indices Indices 22-Feb-19 1 Week Return YTD Return S&P BSE Sensex 35,871.48 0.17% -0.55% Nifty 50 10,791.65 0.63% -0.65% S&P BSE Mid-Cap 14,169.74 1.64% -8.22% S&P BSE Small-Cap 13,517.71 2.00% -8.08% Source: MFI Explorer Ratios NSE Advance/Decline Ratio Date Advances Declines Advance/Decline Ratio 18-Feb-19 583 1216 0.48 19-Feb-19 1024 753 1.36 20-Feb-19 1119 676 1.66 21-Feb-19 1218 571 2.13 22-Feb-19 1226 589 2.08 Source: NSE S&P BSE Sensex Nifty 50 S&P BSE Mid Cap S&P BSE Small Cap P/E 22.92 26.32 30.31-97.68 P/B 2.99 3.41 2.43 2.00 Dividend Yield 1.20 1.25 1.04 0.96 Source: BSE, NSE Value as on Feb 22, 2019 Indian equity markets fell on escalating geo-political tensions, rising crude oil prices and concerns over slower global growth. Uncertainty ahead of the general elections further kept investors cautious. Meanwhile, investors remained watchful on U.S.-China trade talks as initially China blamed U.S. of spreading cyber security fears and maligning its leading technology company. Although, later positive developments were witnessed as the U.S. President hinted that the truce between them could be extended and U.S. might postpone the increase in tariffs if the trade talks continue to progress. Further, investors became worried over the Reserve Bank of India s (RBI) meeting minutes showing Monetary Policy Committee (MPC) members are concerned about growth in the country. 4
Indian Equity Market (contd.) Sectoral Indices Indices Last Returns (in %) Closing* 1-Wk 1-Mth S&P BSE Auto 18,608.14 1.89% -4.73% S&P BSE Bankex 30,091.92 0.40% -2.14% S&P BSE CD 21,282.27 0.90% 0.62% S&P BSE CG 16,815.07 2.46% -4.16% S&P BSE FMCG 11,344.28-0.13% -4.24% S&P BSE HC 13,585.80 1.14% -2.99% S&P BSE IT 15,110.63-1.74% 2.31% S&P BSE Metal 10,669.97 6.55% -1.13% S&P BSE Oil & Gas 13,634.56 4.29% -0.69% S&P BSE Teck 18,608.14 1.89% -4.73% S&P BSE Power 30,091.92 0.40% -2.14% Source: Thomson Reuters Eikon *Value as on Feb 22, 2019 Indian Derivatives Market Review On the BSE sectoral front, most of the indices closed in the green barring S&P BSE IT (-1.74%) and S&P BSE Teck (-0.95%) and S&P BSE FMCG (-0.13%). S&P BSE Metal (6.55%) stood as the major gainer followed by S&P BSE Realty (4.46%) and S&P BSE Oil & Gas (4.29%). Banking sector got some support as media reports suggested that the Ministry of Finance will infuse Rs. 48,239 crore in 12 state-run banks in the fiscal. The objective of the move is to help banks maintain regulatory capital requirements and finance growth plans. Nifty Feb 2019 Futures were at 10,808.80, a premium of 17.15 points, over the spot closing of 10,791.65. The total turnover on NSE s Futures and Options segment for the week stood at Rs. 44.09 lakh crore as against Rs. 44.27 lakh crore for the week to Feb 15. The Put-Call ratio stood at 0.88 compared with the previous week s close of 0.96. The Nifty Put-Call ratio stood at 1.37 against the previous week s close of 1.30. 5
Domestic Debt Market 6 Debt Indicators (%) Current Value 1-Wk Ago 1-Mth Ago 6-Mth Ago Call Rate 6.34 6.24 6.43 6.42 91 Day T-Bill 6.43 6.37 6.56 6.81 7.80% 2021, (5 Yr GOI) 6.76 6.75 7.02 7.69 7.17% 2028, (10 Yr GOI) 7.60 7.58 7.53 7.83 Source: Thomson Reuters Eikon Value as on Feb 22, 2019 Yield in % 7.62 7.56 7.50 Source: CCIL 10 -Yr Benchmark Bond ( % ) 18-Feb 20-Feb 21-Feb 22-Feb Bond yields fell initially after the central bank announced to transfer an amount of Rs. 280 billion as an interim surplus to bridge the fiscal deficit. This was a positive surprise for the market, which helped in bringing down the yield. However, the trend reversed due to feeble demand at the auction. Concerns over widening fiscal deficit and heavy borrowing plan of Rs. 7.10 trillion by the government for the next financial year continued to weigh on market sentiment. Minutes of the latest monetary policy meeting released by the central bank hinted at rate cut in Apr 2019 and were in line with expectations. Yields on the 10-year benchmark paper (7.17% GS 2028) rose 2 bps to close at 7.60% from the last week s close at 7.58%.
Domestic Debt Market (Spread Analysis) Maturity G-Sec Yield (%) Corporate Yield (%) Spread bps 1 Year 6.67 8.28 161 3 Year 6.88 8.36 148 5 Year 7.32 8.51 119 10 Year 7.75 8.73 98 Source: Thomson Reuters Eikon Value as on Feb 22, 2019 Yields on gilt securities increased across the maturities by up to 7 bps barring 3-, 12- and 13-year papers that fell by up to 2 bps. Corporate bond yields rose across the maturities in the range of 2 bps to 7 bps barring 1-year paper that closed steady. Difference in spread between AAA corporate bond and gilt contracted on 1- and 15-year papers by 2 bps each. Spread expanded across the remaining maturities by up to 8 bps barring 4- and 5-year papers that closed steady. Yield in % 8.00 7.10 6.20 Source: Thomson Reuters Eikon India Yield Curve Shift (%) (W-o-W) 3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs Change in bps 22-Feb-19 15-Feb-19 8 4 0 Change in bps 7
Regulatory Updates in India According to media reports, the Reserve Bank of India will pay an interim dividend of Rs. 28,000 crore to the government. There is a perception that the move that will help the central government to keep fiscal deficit in check. It needs to be noted that this is the second successive year that the Reserve Bank of India will be transferring an interim surplus. The Union Cabinet has approved the National Electronics Policy. The policy aims at domestic production of electronics goods to touch $400 billion by 2025 against around $80 billion now. The policy has proposed interest subvention scheme under which an interest subsidy of 4% will be provided on loans of up to Rs. 1,000 crore on plant and machinery. In case of a larger loan, subsidy will be limited to Rs. 1,000 crore. According to media reports, the government plans to address taxation-related pain points and reduce the number of tax litigations, while focusing on some of the major issues that may lead to revenue generation. The Central Board of Direct Taxes (CBDT) has made a four-member committee, in the leadership of income tax commissioner to examine the matter and submit its final report and recommendations by middle of Mar 2019. The committee is looking to tackle the issue in a two-prong way addressing some current pain points and recommending some steps borrowed from international best practices, the report said. 8
Regulatory Updates in India (contd..) According to media reports, the government has eased angel tax norms for start up companies. The government has increased the investment limit to Rs. 25 crore for availing income tax concessions by start up entities from the present limit of Rs. 10 crore. In addition, the government has also broadened the definition of a start up entity. According to the new norm, an entity will be considered as a start up entity when has been operating for a time period of ten years from its date of incorporation or registration, instead of the current seven years. Furthermore, an entity will be treated as a start up entity if its turnover for any of the financial years since incorporation and registration has not exceeded Rs 100 crore from the present limit of Rs. 25 crore. The move is of significant importance given the fact that many start up entities has expressed concerns regarding the fact that they were given angel tax notices which had adversely impacted their business. A section of the GST Council is worried that the need to give tax relief to the housing sector to boost demand could lead to large scale tax evasion by builders. Thus, it wants to ensure that relief should be structured in such a way that revenue leakage is taken care of. The proposed GST rate cut with denial of input tax credit to builders would come with a condition that builders must ensure 80% of the inputs are procured from GST-registered dealers. Kerala finance minister feels that including capital goods as inputs would enable developers to meet the condition easily and opening up a window for them to procure other building materials from unregistered dealers. This could result in lower revenue collection for the government, and facilitate more evasion. 9
Global News/Economy As per the minutes of the U.S. Federal Reserve's latest policy meeting, "a patient approach would have the added benefit of giving policymakers an opportunity to judge the response of economic activity and inflation to the recent steps taken to normalize the stance of monetary policy". The minute stated that additional data would help policymakers gauge the trajectory of business and consumer sentiment and the impact of the financial tightening on aggregate demand. The Commerce Department showed a significant increase in U.S. durable goods orders in Dec 2018. The report said durable goods orders increased 1.2% in Dec after jumping 1.0% in Nov 2018. U.K. employment hit a record high in Dec 2018 and wages grew at their fastest pace in a decade. Employment rose by 167,000 to a record high of 32.60 million in the three months to December. Preliminary survey data from IHS Markit showed that eurozone's private sector expanded at the fastest pace in three months in Feb 2019, led by stronger growth in services, while manufacturing contracted. The flash Composite Purchasing Managers' Index grew to 51.4 from 51 in Jan 2019. Overall nationwide consumer prices in Japan increased 0.2% YoY in Jan 2018. This was in line with expectations and less than 0.3% in Dec 2018. Core consumer prices, which excludes volatile food prices, increased 0.8% YoY, matching forecasts and up from 0.7% in the previous month. 10
Global Equity Markets Indices Global Indices 22-Feb-19 1-Week Return YTD Return Dow Jones 26,031.81 0.57% 11.59% Nasdaq 100 7,090.63 0.50% 12.02% FTSE 100 7,178.60-0.80% 6.70% DAX Index 11,457.70 1.40% 8.51% Nikkei Average 21,425.51 2.51% 7.05% Straits Times 3,269.90 0.93% 6.55% Source: Thomson Reuters Eikon Value as on Feb 22, 2019 Europe U.S. U.S. markets witnessed buying spree, led by optimism over positive breakthrough of talks between U.S. and China over the trade deal. Recently, the U.S. President suggested that he could postpone the increase of tariffs, set to take effect after the deadline of Mar 1, 2019, in case the trade talks show signs of progress. Majority of the European markets drew positive cues from optimism over the upcoming round of talks between the U.S. and Chinese officials. Investors are expecting that the two nations will take steps closer toward achieving a trade deal in the foreseeable future. Market participants also closely followed developments over Brexit. Asia Asian markets reflected gains in global peers. Buying interest was impacted by the minutes of the U.S. Federal Reserve s latest meeting that indicated a patient approach to raising interest rates in the future. Japanese markets rose on optimism over U.S.-China trade talks, which helped investors shrug off weak manufacturing data, as revealed in preliminary reading of a private survey. 11
Global Debt (U.S.) US 10-Year Treasury Yield Movement 2.74 2.69 2.65 2.60 19-Feb 20-Feb 21-Feb 22-Feb Source: Thomson Reuters Eikon Yields on the 10-year U.S. Treasuries fell 1 bps to close at 2.66% from the previous close of 2.67%. U.S. Treasury prices grew ahead of the release of U.S. Federal Reserve's (Fed) Jan 2019 policy meeting minutes. Fed had indicated patience in raising interest rates in the policy meeting. Weak U.S. economic data amid federal government shutdown added to the gains. Preliminary data for U.S Markit Manufacturing PMI showed that it fell more than market expectations for Feb 2019. However, reports of progress in U.S. and China trade talks, restricted the gains. According to media reports, leaders from U.S. and China have begun framing commitments in principle on the major issues, thereby marking the most significant progress so far. 12
Commodities Market Rebased to 10 Global Commodity Prices 11.50 11.00 10.50 10.00 Global Commodity Movement 9.50 23-Jan-19 2-Feb-19 12-Feb-19 22-Feb-19 Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl) Source: Thomson Reuters Eikon Performance of various commodities 2.14% Commodities Last Closing* 1-Week Ago Brent Crude($/Barrel) 67.45 66.04 Gold ($/Oz) 1327.71 1321.01 Gold (Rs/10 gm) 33252 33193 Silver ($/Oz) 15.92 15.78 Silver (Rs/Kg) 40121 39767 0.89% 0.51% Source: Thomson Reuters Eikon *Value as on Feb 22, 2019 Gold Gold prices grew amid Brexit uncertainties and political unrest in U.S. pertaining to the controversial U.S.- Mexico border. The bullion s price was also supported by the cautious stance taken by Bank of Japan on its monetary policy amid rising global risks. Concerns over U.S.-China trade negotiations also led to the gains. The two economies recently held talks in Beijing to resolve their trade differences. Brent Crude Brent crude prices surged due to the OPEC-led production cut to tighten the oil market. Besides, the U.S. sanction on Venezuela also raised supply concerns, thereby adding to the gains. Baltic Dry Index The Baltic Dry Index fell on the back of lower capesize and panamax activities. 13
Currencies Markets Currency Prices ( in terms of INR) Rebased to 10 Movement of Rupee vs Other Currencies Currency Last Closing* 1-Wk Ago US Dollar 71.22 71.25 Pound Sterling 92.83 91.23 EURO 80.75 80.42 JPY(per 100 Yen) 64.29 64.55 Source: RBI Figures in INR, *Value as on Feb 22, 2019 14 10.30 10.20 10.10 10.00 9.90 9.80 9.70 23-Jan-19 2-Feb-19 12-Feb-19 22-Feb-19 Source: RBI Currency Movement USD GBP Euro JPY 1.75% -0.05% 0.42% -0.40% Rupee The rupee inched up against the greenback amid gains in the domestic equity market and on hopes that the ongoing trade tussle between U.S. and China might soon be resolved. Euro The euro rose against the greenback on hopes that the ongoing trade tussle between U.S. and China might soon come to an end. Pound The pound rose against the greenback on hopes that the British Prime Minister would be able to come out with a revised Brexit deal with the European Union. Yen The yen weakened against the greenback on concerns of another rate hike in U.S. following the release of U.S. Fed s policy meeting minutes of Jan 2019.
15 The Week that was 18 th February to 22 nd February
The Week that was (Feb 18 Feb 22) Date Monday, February 18, 2019 Tuesday, February 19, 2019 Wednesday, February 20, 2019 Thursday, February 21, 2019 Friday, February 22, 2019 Events Present Value Previous Value U.K. Rightmove House Prices (YoY) (Feb) 0.2% 0.4% Eurozone ZEW Survey (Economic Sentiment) (Feb) -16.6-20.9 German ZEW Survey Expectations (Feb) -13.0-15.0 U.K. Employment Change 3M/3M (Dec) 167k 141k Japan Trade Balance (Jan) - 1452.2b - 56.7b U.S. MBA Mortgage Applications (Feb 15) 3.6% -6.9% Eurozone Consumer Confidence (Feb A) -7.4-7.9 Japan National Consumer Price Index (YoY) (Jan) 0.2% 0.3% U.S. Durable Goods Orders (Dec P) 1.2% 1.0% Japan All Industry Activity Index (MoM) (Dec) -0.4% -0.5% Germany Consumer Price Index (YoY) (Jan F) 1.4% 1.4% Germany Markit/BME Composite PMI (Feb P) 52.7 52.1 Eurozone Markit Composite PMI (Feb P) 51.4 51.0 U.S. Existing Home Sales (MoM) (Jan) -1.2% -4.0% U.K. Public Sector Net Borrowing (Jan) -15.8b 2.14b U.S. Leading Index (Jan) -0.1% -0.1% Germany Gross Domestic Product (YoY) (4Q F) 0.9% 0.6% Eurozone Consumer Price Index (YoY) (Jan F) 1.4% 1.6% 16
17 The Week Ahead 25 th February to 01 st March
The Week Ahead Day Monday, February 25, 2019 Tuesday, February 26, 2019 Wednesday, February 27, 2019 Thursday, February 28, 2019 Friday, March 01, 2019 Event U.S. Retail Sales Advance (MoM) (Jan) German GfK Consumer Confidence (Mar) U.S. Housing Starts (MoM) (Dec) U.S. Consumer Confidence Index (Feb) German Retail Sales (YoY) (Jan) U.S. Advance Goods Trade Balance (Dec) Japan Industrial Production (YoY) (Jan P) U.K. GfK Consumer Confidence (Feb) German Consumer Price Index (YoY) (Feb P) U.S. Gross Domestic Product Annualized (GDP) (QoQ) (4Q A) India GDP Estimate Q3FY19 India Index of Eight Core Industries (Jan) Eurozone Consumer Price Index Estimate (YoY) (Feb) U.S. Personal Consumption Expenditure Core (YoY) (Dec) U.S. ISM Manufacturing (Feb) India Nikkei Manufacturing PMI (Feb) 18
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