News U Can Use January 25, 2019
2 The Week that was 21 st January to 25 th January
Indian Economy The International Monetary Fund (IMF) upgraded the growth forecasts of the Indian economy for 2019 by 10 bps to 7.5%. For 2018, IMF estimated the growth of the Indian economy at 7.3% and projected the growth rate to go up to 7.7% in 2020. IMF is of the view that low global crude oil prices, slower pace of monetary tightening and fall in domestic inflationary pressures will provide support to the growth prospects of the Indian economy. An interim finance minister got appointed for second time in the absence of the incumbent finance minister. The interim minister will present the upcoming Budget 2019-20. This has happened as the incumbent finance minister is said to be in the U.S. for the treatment of an illness. A United Nations (UN) report showed India's economy could grow at 7.4% during 2018-19 and improve to 7.6% in 2019-20. The United Nations' World Economic Situation and Prospects 2019 report expects India's Gross Domestic Product (GDP) to expand by 7.4% in 2020-21. The report said growth continues to be supported by robust private consumption, a more expansionary fiscal stance and benefits from earlier reforms. It said a sustained recovery of private investment is crucial to lift medium-term growth. India has started bilateral talks on the modalities of tariff concessions with China. India is under pressure to reduce duties on at least 80% of its imports from China under a mega trade agreement Regional Comprehensive Economic Partnership (RCEP) that covers 16 countries. 3
Indian Equity Market Domestic Equity Market Indices Indices 25-Jan-19 1 Week Return YTD Return S&P BSE Sensex 36,025.54-0.99% -0.12% Nifty 50 10,780.55-1.16% -0.75% S&P BSE Mid-Cap 14,681.82-2.27% -4.90% S&P BSE Small-Cap 14,000.20-3.48% -4.80% Source: MFI Explorer Ratios NSE Advance/Decline Ratio Date Advances Declines Advance/Decline Ratio 21-Jan-19 553 1238 0.45 22-Jan-19 538 1244 0.43 23-Jan-19 677 1073 0.63 24-Jan-19 591 1178 0.50 25-Jan-19 443 1356 0.33 Source: NSE S&P BSE Sensex Nifty 50 S&P BSE Mid Cap S&P BSE Small Cap P/E 23.68 26.14 31.43-96.08 P/B 3.02 3.36 2.52 2.09 Dividend Yield 1.17 1.25 0.99 0.91 Source: BSE, NSE Value as on Jan 25, 2019 Indian equity markets lost in the week ended Jan 25, 2019, after witnessing gains in the last two weeks. Investors shied away from riskier assets after the International Monetary Fund (IMF) revised its growth forecast for the global economy. The IMF s revised projection is 3.5% growth rate worldwide for 2019 and 3.6% for 2020, which is a cut of 0.2 and 0.1 percentage points, respectively, from its forecasts in Oct 2018. Weak global cues continued to weigh on the domestic markets. U.S.-China trade tensions re-emerged as media reports claimed a meeting between the two has been cancelled, though U.S. officials denied the same. Further, prolonged U.S. government shutdown and Brexit concerns played spoil sport. 4
Indian Equity Market (contd.) Sectoral Indices Indices Last Returns (in %) Closing* 1-Wk 1-Mth S&P BSE Auto 18,624.2-6.49% -10.10% S&P BSE Bankex 30,377.5-1.18% 1.51% S&P BSE CD 20,951.3 0.01% 4.38% S&P BSE CG 17,174.3-2.99% -6.76% S&P BSE FMCG 11,657.4-1.81% 0.15% S&P BSE HC 13,948.3 1.06% 1.68% S&P BSE IT 14,784.4 0.77% 5.88% S&P BSE Metal 10,735.5-3.11% -7.26% S&P BSE Oil & Gas 13,765.0 1.37% 1.89% S&P BSE Power 1883.29-3.65% -4.21% S&P BSE Realty 1790.41-3.08% -1.06% Source: Thomson Reuters Eikon *Value as on Jan 25, 2019 Indian Derivatives Market Review 5 On the BSE sectoral front, majority of the indices closed on a weak note. S&P BSE Auto was the major loser, down 6.49%, followed by S&P BSE Power that fell 3.65%. Auto stocks remained under pressure as a major domestic automaker registered double-digit decline in net profit for the third quarter of FY19. S&P BSE Metal and S&P BSE Realty plunged 3.11% and 3.08%, respectively. Nifty Jan 2019 Futures were at 10,785.95, a premium of 5.40 points, over the spot closing of 10,780.55. The total turnover on NSE s Futures and Options segment for the week stood at Rs. 35.67 lakh crore as against Rs. 36.12 lakh crore for the week to Jan 18. The Put-Call ratio stood at 0.94 compared with the previous week s close of 0.97. The Nifty Put-Call ratio stood at 1.37 against the previous week s close of 1.56.
Yield in % Domestic Debt Market Debt Indicators (%) Current Value 1-Wk Ago 1-Mth Ago 6-Mth Ago Call Rate 6.41 6.45 6.50 6.24 91 Day T-Bill 6.58 6.60 6.66 6.65 7.80% 2021, (5 Yr GOI) 7.02 6.70 6.85 7.70 7.17% 2028, (10 Yr GOI) 7.55 7.60 7.29 7.79 Source: Thomson Reuters Eikon Value as on Jan 25, 2019 7.60 7.50 7.40 Source: CCIL 10 -Yr Benchmark Bond ( % ) 21-Jan 22-Jan 23-Jan 24-Jan 25-Jan Bond yield came down over the week as fall in global crude oil prices boosted market sentiment. However, gains were capped as the country s fiscal position remained in focus. Market participants worry that a farm relief package, which is expected to be announced by the government soon, and increase in expenditure ahead of the general elections might make it difficult for the government to adhere to its fiscal consolidation roadmap. Yield on the 10-year benchmark paper (7.17% GS 2028) fell 5 bps to close at 7.55% from the last week s close at 7.60%, after trading in a range of 7.51% to 7.65%. 6
Yield in % Domestic Debt Market (Spread Analysis) Maturity G-Sec Yield (%) Corporate Yield (%) Spread bps 1 Year 6.94 8.38 144 3 Year 7.13 8.54 141 5 Year 7.43 8.49 106 10 Year 7.69 8.61 92 Source: Thomson Reuters Eikon Value as on Jan 25, 2019 Yields on gilt securities increased on 2-, 6-, 11- and 15-year maturities by up to 6 bps. Yield fell across the remaining maturities by up to 7 bps barring 3- and 19-year papers that closed steady. Corporate bond yields increased across 1 to 6 years papers and 15-year maturity by up to 8 bps. Difference in spread between AAA corporate bond and gilt expanded across the maturities in the range of 3 bps to 15 bps barring 6- and 15-year papers that contracted 3 bps each. 8.00 7.00 6.00 3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs Change in bps 25-Jan-19 18-Jan-19 Source: Thomson Reuters Eikon India Yield Curve Shift (%) (W-o-W) 1-4 -9 Change in bps 7
Regulatory Updates in India The Union cabinet approved setting up of the national bench of the appellate tribunal for disputes under the Goods and Services Tax (GST). The body (GSTAT) will be the first common forum of dispute resolution between the Centre and states. Also, it will be an adjudication authority on distinct orders passed by different state-level appellate authorities on the same issue of law. GSTAT bench will be located in Delhi and presided by the president along with two technical member one each from the Centre and state. The Reserve Bank of India (RBI) made amendments to Foreign Exchange Management Act (FEMA) regulations wherein now foreign companies in defence, telecom, information & broadcasting, and private security sectors will not require the central bank s approval to open branch offices. These entities need to have an approval of the regulator and the ministry concerned. RBI proposed to relax rules for entry of new players in the retail payment systems. RBI is doing this to give a boost to innovation and competition. RBI grants authorisation to nonbanks for setting up and operating payment systems. By the end of 2018, there were 89 authorised non-bank Payment System Operators (PSOs). Exporters could get incentives based on criteria such as research and development, product-specific clusters and production pattern under a five-year foreign trade policy (FTP). The FTP will be released later in 2019, according to media reports. 8
Regulatory Updates in India (contd..) A committee on special economic zones (SEZ) suggested that certain sectors such as electronics are showing high domestic demand and should have a plan for import substitution. For SEZs focussed on services including information technology, medical tourism and financial services, the panel said the government may not have to completely change the existing policies but design measures to make them more attractive for investors. The National Highways Authority of India (NHAI) is tightening the rules for developers to bid for road projects under the engineering, procurement, and construction (EPC) mode. This is being done in an effort to disqualify weak, non-performing and incapable developers from winning projects. NHAI has already imposed certain filters like missing at least two construction milestones in past projects, physical progress not commensurate with the funds released, and failure to maintain a highway in spite of two rectification notices. 9
Global News/Economy According to a report from the National Association of Realtors, U.S. existing home sales fell 6.4% to an annual rate of 4.99 million in Dec 2018 as against a gain of 2.1% to a revised rate of 5.33 million (5.32 million originally reported) in Nov 2018. This marked the lowest level since Nov 2015. European Central Bank left its key interest rates and forward guidance unchanged in its latest policy meeting. The main refinance rate is currently at a record low of 0% and the deposit rate at -0.40%. The marginal lending facility rate is at 0.25%. The interest rates were last raised in Jul 2011 by 25 basis points. The central bank stated that the interest rates are likely to remain at their present levels at least through the summer of 2019. The same may extend as long as it is necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to 2%, over the medium term. The National Bureau of Statistics showed China's economy expanded at the weakest pace in around three decades in 2018. The trade war with the U.S. has hurt business activity and sentiment. Full-year growth slowed to 6.6% in 2018, which is the weakest pace of expansion since 1990, but in line with expectations. On a quarterly basis, gross domestic product grew 6.4% YoY in the fourth quarter of 2018, which is slower than 6.5% expansion in the previous three months and the weakest since the global financial crisis in 2009. The Bank of Japan (BoJ) kept its monetary policy unchanged and maintained interest rate at -0.1% on current accounts that financial institutions maintain at the bank. Also, BoJ asserted that interest rates will remain at ultra low levels for an extended period of time. 10
Global Equity Markets U.S. Indices 11 Global Indices 25-Jan-19 1-Week Return YTD Return Dow Jones 24,737.2 0.12% 6.04% Nasdaq 100 6,787.4 0.04% 7.23% FTSE 100 6,809.2-2.28% 1.21% DAX Index 11,281.8 0.68% 6.85% Nikkei Average 20,773.6 0.52% 3.79% Straits Times 3,202.3-0.69% 4.35% Source: Thomson Reuters Eikon Value as on Jan 25, 2019 Europe U.S. markets rose marginally on expectations of positive development over the U.S.-China trade relationships after the U.S. Treasury Secretary said the two countries were "making a lot of progress" in talks. However, U.S. government s partial shutdown and weak global growth forecast by the International Monetary Fund eroded much of the gains. European markets mostly gained on expectations of positive outcome from U.S.-China trade talks scheduled for next week. However, concerns over Brexit and economic growth limited the upside. While International Monetary Fund (IMF) lowered its forecast for global growth in the current year; the ECB President expressed concerns about the euro zone economy. Asia Asian markets mostly closed in the green as positive developments occurred in the U.S.- China trade relations. Investors also became optimist after the Chinese Finance Minister indicated that the Chinese government would raise its fiscal spending to support economic growth. Bank of Japan also mentioned that it would continue with its ultra-easy monetary policy. This has raised investors confidence in economic growth.
Global Debt (U.S.) US 10-Year Treasury Yield Movement 2.81 2.76 2.71 2.66 22-Jan 23-Jan 24-Jan 25-Jan Source: Thomson Reuters Eikon Yields on the 10-year U.S. Treasuries fell 3 bps to close at 2.75% from the previous close of 2.78%. U.S. Treasury prices grew prompted by worries over slowing global growth and trade tensions between China and the U.S. A record-long U.S. government shutdown and comments from the European Central Bank President indicating rise in eurozone s economic risks added to the gains. Gains were extended after U.S. home resales fell to the lowest level since Nov 2015. However, gains in U.S. equity markets and decline in U.S. initial jobless claims in the week ended Jan 19, 2019 to the lowest level since 1969 limited the upside. 12
Global Commodity Prices Commodities Market Rebased to 10 Global Commodity Movement 12.40-0.48% 10.90 2.77% 1.72% 9.40 26-Dec-18 5-Jan-19 15-Jan-19 25-Jan-19 Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl) Source: Thomson Reuters Eikon Performance of various commodities Commodities Last Closing* 1-Week Ago Brent Crude($/Barrel) 61.93 62.23 Gold ($/Oz) 1,303.14 1,281.11 Gold (Rs/10 gm) 32,303 32,276 Silver ($/Oz) 15.74 15.32 Silver (Rs/Kg) 38,826 39,034 Source: Thomson Reuters Eikon *Value as on Jan 25, 2019 Gold Gold prices traded higher following the European Central Bank s warning regarding a slowdown in the eurozone. Weak global economic data also raised concerns over global growth slowdown. Safe haven appeal of the bullion increased after the IMF trimmed its global growth forecast. Brent Crude Brent crude prices traded lower after the IMF cautioned of sluggish global economic growth. The economic slowdown in China, indicated by the weakest GDP growth in three decades in 2018, raised concerns over fuel demand. Baltic Dry Index The Baltic Dry Index fell on the back of lower capesize and panamax activities. 13
Currency Prices ( in terms of INR) Currencies Markets Rebased to 10 10.54 10.31 10.08 Source: RBI Movement of Rupee vs Other Currencies Currency Last Closing* 1-Wk Ago US Dollar 71.11 71.14 Pound Sterling 93.24 92.29 EURO 80.50 81.07 100 JPY 64.74 65.04 Source: RBI Figures in INR, *Value as on Jan 25, 2019 14 Currency Movement 9.85 26-Dec-18 5-Jan-19 15-Jan-19 25-Jan-19 USD GBP Euro JPY 1.02% -0.46% -0.05% -0.70% Rupee Indian rupee stood almost unchanged as losses due to concerns over general elections, fiscal deficit and global growth was neutralized by gains due to selling of greenback by banks and importers. Euro Euro fell against the U.S. dollar after ECB President indicated rise in eurozone s economic risks and that nearterm data could be weaker. Pound Pound surged against the U.S. dollar following strong U.K. employment data that indicated strong labour market condition despite an economic slowdown ahead of Brexit. Yen Yen weakened against the U.S. dollar after the Bank of Japan kept its monetary policy unchanged but downgraded the inflation forecasts.
15 The Week that was 21 st January to 25 th January
The Week that was (Jan 21 Jan 25) Date Events Present Value Previous Value Monday, January 21, 2019 Tuesday, January 22, 2019 Wednesday, January 23, 2019 Thursday, January 24, 2019 Friday, January 25, 2019 China Gross Domestic Product (YoY) (4Q) 6.4% 6.5% China Retail Sales YTD (YoY) (Dec) 9.0% 9.1% China Industrial Production YTD (YoY) (Dec) 6.2% 6.3% Germany ZEW Survey Expectations (Jan) -15-17.5 Eurozone ZEW Survey (Economic Sentiment) (Jan) -20.9-21.0 Japan Trade Balance (Dec) - 55.3b - 737.7b Bank of Japan Rate Decision -0.1% -0.1% Japan All Industry Activity Index (MoM) (Nov) -0.3% 2.1% U.S. House Price Index (MoM) (Nov) 0.4% 0.4% Eurozone Consumer Confidence (Jan A) -7.90-8.30 European Central Bank Rate Decision 0.0% 0.0% Japan Nikkei Manufacturing PMI (Jan P) 50.0 52.6 Germany Markit Manufacturing PMI (Jan P) 49.9 51.5 Eurozone Markit Composite PMI (Jan P) 50.7 51.1 U.S. Initial Jobless Claims (Jan 19) 199K 212k U.S. Markit Manufacturing PMI (Jan P) 54.9 53.8 Germany IFO Expectations (Jan) 94.2 97.3 16
17 The Week Ahead 28 th January to 1 st February
The Week Ahead Day Monday, January 28, 2019 Tuesday, January 29, 2019 Wednesday, January 30, 2019 Thursday, January 31, 2019 Friday, February 1, 2019 Event U.K. Nationwide House Px n.s.a. (YoY) (Jan) China Industrial Profits (YoY) (Dec) U.S. Advance Goods Trade Balance (Dec) U.S. Consumer Confidence Index (Jan) U.S. Wholesale Inventories (MoM) (Dec P) Japan Retail Trade (YoY) (Dec) Japan Large Retailers' Sales (Dec) Japan Consumer Confidence Index (Jan) U.S. Gross Domestic Product Annualized (QoQ) (4Q A) U.S. FOMC Rate Decision Japan Industrial Production (YoY) (Dec P) China Manufacturing PMI (Jan) Eurozone Gross Domestic Product s.a. (YoY) (4Q A) Eurozone Unemployment Rate (Dec) Eurozone Consumer Price Index Estimate (YoY) (Jan) U.S. Change in Non-farm Payrolls (Jan) U.S. Unemployment Rate (Jan) U.S. ISM Manufacturing (Jan) 18
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