News U Can Use June 29, 2018
2 The Week that was 25 th June to 29 th June
Indian Economy Government data showed that India's fiscal deficit for the period from Apr to May of 2018 stood at Rs. 3.45 lakh crore or 55.3% of the budget estimate for FY19. However, this is lower than 68.3% of the budget estimate for FY18 compared to the corresponding period of the previous year. Total expenditure for the period from Apr to May of 2018 stood at Rs 4.73 lakh crore, or 19.4% of the budget estimate for FY19. Total receipts stood at Rs. 1.27 lakh crore or 7.0% of the budget estimate for FY19. Tax revenue was at Rs. 1.02 lakh crore, or 6.9% of the full-year target. Capital expenditure accounted 21.3% of the FY19 target, compared to 17.0% in the corresponding period of the previous year. According to the Financial Stability Report by the Reserve Bank of India (RBI), the Indian banking sector will continue to remain under stress as gross non-performing advances (GNPA) ratio will increase further. RBI estimated that GNPA of scheduled commercial banks could rise to 12.2% by Mar 2019 from 11.6% in Mar 2018. RBI added that the system-level capital to risk-weighted assets ratio (CRAR) may decline from 13.5% to 12.8% during the same period. The Indian Meteorological Department (IMD) stated that the entire country has been covered by monsoon 17 days before the normal schedule. IMD stated that the monsoon covers the entire country by Jul 1, 2018 and reaches West Rajasthan later. However, this year due to good easterly rains, monsoon reached the entire country early. 3
Indian Equity Market Domestic Equity Market Indices Indices 29-Jun-18 1 Week Return YTD Return S&P BSE Sensex 35,423.48-0.75% 4.01% Nifty 50 10,714.30-0.99% 1.74% S&P BSE Mid-Cap 15,450.90-2.45% -13.31% S&P BSE Small-Cap 16,032.15-3.07% -16.63% Source: MFI Explorer Ratios NSE Advance/Decline Ratio Date Advances Declines Advance/Decline Ratio 25-Jun-18 478 1322 0.36 26-Jun-18 552 1237 0.45 27-Jun-18 271 1570 0.17 28-Jun-18 430 1356 0.32 29-Jun-18 1348 459 2.94 Source: NSE S&P BSE Sensex Nifty 50 S&P BSE Mid Cap S&P BSE Small Cap P/E 22.54 25.90 33.03 99.19 P/B 2.91 3.61 2.59 2.23 Dividend Yield 1.26 1.22 0.94 0.78 Source: BSE, NSE Value as on Jun 29, 2018 Indian equity markets closed on a lower note. Decline in oil & gas and banking stocks weighed on the indices. Stocks of oil marketing companies fell due to rise in oil prices amid risk of supply disruption. Also, rupee touched a new low because of higher inflation and widening fiscal deficit. On the global front, trade row between U.S. and other major global economies continued to weigh on market sentiment. Worries that the U.S. President s approach towards trading activities may prove to be detrimental to global economic growth muted buying interest. 4
Indian Equity Market (contd.) Sectoral Indices Indices Last Returns (in %) Closing* 1-Wk 1-Mth S&P BSE Auto 23,838.3-3.39% -2.97% S&P BSE Bankex 29,250.6-2.16% -0.54% S&P BSE CD 20,206.7-0.04% -3.63% S&P BSE CG 17,488.2-1.76% -8.30% S&P BSE FMCG 11,213.3 0.75% -0.22% S&P BSE HC 14,003.6-2.06% 5.98% S&P BSE IT 13,920.1 2.17% 4.19% S&P BSE Metal 13,064.5 0.54% -4.20% S&P BSE Oil & Gas 13,659.5-5.05% -4.83% S&P BSE Power 1946.6-2.96% -8.72% S&P BSE Realty 2073.4-3.81% -8.15% Source: Thomson Reuters Eikon *Value as on June 29, 2018 On the sectoral front, S&P BSE Oil & Gas (-5.05%) stood as the major loser followed by S&P BSE Realty (-3.81%) and S&P BSE Auto (-3.39%). S&P BSE Power and S&P BSE Bankex fell (-2.96%) and (- 2.16%), respectively. Decline in auto stocks reflects lingering concerns over auto tariff threat by the U.S and fall in oil & gas stocks reflects surging oil prices. S&P BSE Information Technology stood as the major gainer (2.17%). Indian Derivatives Market Review Nifty Jun 2018 Futures settled at 10,589.10. Nifty Jul 2018 Futures were at 10,694.80, a discount of 19.50 points, below the spot closing of 10,714.30. The turnover on NSE s Futures and Options segment stood at Rs. 53.45 lakh crore as against Rs. 44.92 lakh crore on Jun 22. The Put-Call ratio stood at 0.82 compared with the previous week s close of 0.90. The Nifty Put-Call ratio stood at 1.48 compared with the previous week s close of 1.65. 5
Yield in % Domestic Debt Market Debt Indicators (%) Current Value 1-Wk Ago 1-Mth Ago 6-Mth Ago Call Rate 6.21 6.25 5.89 6.10 91 Day T-Bill 6.49 6.46 6.37 6.22 7.80% 2021, (5 Yr GOI) 7.75 7.68 7.57 6.96 7.17% 2028, (10 Yr GOI) 7.90 7.82 7.76 7.33 Source: Thomson Reuters Eikon Value as on June 29, 2018 8.00 7.85 7.70 Source: CCIL 10 -Yr Benchmark Bond ( % ) 25-Jun 26-Jun 27-Jun 28-Jun 29-Jun Bond yields rose following rally in the global crude oil prices and weakening domestic currency that raised worries about faster pace of consumer inflation growth rate going forward. Media reports stating that the Union cabinet may discuss raising minimum support prices of some crops by up to 15% in its next meeting fuelled concerns of increase in domestic inflationary pressures, which also weighed on market sentiment. However, further losses were restricted as market participants resorted to short covering. Yield on the 10-year benchmark paper (7.17% GS 2028) increased 8 bps to close at 7.90% from the previous week s close of 7.82% after trading in a range of 7.81% to 7.94%. 6
Yield in % Domestic Debt Market (Spread Analysis) Maturity G-Sec Yield (%) Corporate Yield (%) Spread bps 1 Year 7.14 8.29 115 3 Year 7.90 8.65 75 5 Year 8.10 8.77 67 10 Year 8.06 8.78 72 Source: Thomson Reuters Eikon Value as on June 29, 2018 Yields on gilt securities increased across the maturities by up to 11 bps. Corporate bond yields increased across the maturities in the range of 3 bps to 11 bps barring 15-year paper that fell 1 bps. Spread between AAA corporate bond and gilt contracted across 3 to 5 years maturities, 10- and 15-year papers by up to 7 bps. Spread expanded across the remaining maturities in the range of 2 to 4 bps barring 7-year paper that closed steady. India Yield Curve Shift (%) (W-o-W) 8.60 7.30 6.00 3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs Change in bps 29-Jun-18 22-Jun-18 Source: Thomson Reuters Eikon 15 10 5 0 Change in bps 7
Regulatory Updates in India According to the vice-chairman of Niti Aayog, petroleum will unlikely be brought under the purview of Goods and Services Tax (GST) any time soon. The vice chairman clarified that the highest tax bracket under GST is 28% while the total state and Central taxes on petrol put together at present are around 90%. Thus, no state will be ready to take such a huge cut even if petroleum is bought after paying GST. He added that in such a case, a new GST band will have to be opened which will be a cumbersome exercise. On a separate note, the vice chairman opined that a better way to bring petroleum under GST will be to first start rationalizing/reducing taxes on petroleum products. According to media reports, the government clarified that firms that are into the business of food product retail trading and have foreign investments should maintain separate books of accounts and inventories in warehouses. This implies that business of food product retail trading needs to be readily distinct and physically separated from any other business of the investee company in the front end or in the warehouse. According to media reports, the government is working to improve the regulations for auditors and corporate professionals. The objective is to strengthen the "fabric of corporate governance" in the country. The move assumes significance as till recently there has been multiple instances of auditors resigning from companies on various grounds. 8
Regulatory Updates in India (contd..) According to media reports, the government extended the ban on import of milk and its products, including chocolates, chocolate products, candies, confectionary food preparations with milk or milk solids as an ingredient for a time period of six months till Dec 23, 2018. The extension of ban came following worries that melamine might be present in some of the milk consignments from China. Melamine is a toxic chemical which is used for making fertilizers and plastics. According to media reports, the Indian government decided to defer the implementation of Tax Collection at Source (TCS) for three more months. The move is expected to give relief to e-commerce service providers. TCS is an anti-evasion measure which is used to keep track of transactions. The government is of the view that the imposition of TCS might burden the GST Network (GSTN). The government wants to ensure that systems are fully prepared to handle the added transactions before implementation. Market regulator Securities and Exchange Board of India (SEBI) proposed that exchanges compulsorily needs to recognize an independent polling agency for spot price polling. This will improve transparency and credibility to the spot price polling mechanism in commodities as the agency would be able to do the job independently for all the exchanges on a specific commodity. The proposal was made as any discrepancy in the linkages between the spot and future prices could have negative impact on the price in two markets i.e. derivatives and spot. 9
Global News/Economy According to the Commerce Department report, real Gross Domestic Product (GDP) rose 2.0% YoY in the Mar quarter of 2018, slower than market forecast and the previous estimate of 2.2% rise. The slower rise is attributed to downward revision in private inventory investment, consumer spending, and exports. In the Dec quarter of 2018, GDP rose 2.9% YoY. S&P Global Ratings has affirmed its 'AA+' sovereign credit ratings and 'stable' outlook on the U.S. According to the rating agency, the rating reflects flexibility and diversity of the economy, institutional strength, extensive flexibility of economic policy. Being the issuer of the U.S. dollar, which is world's leading reserve currency also added to its merit. According to the data published by the Office for National Statistics showed, the UK s GDP grew 0.2% QoQ in the Mar quarter of 2018, from 0.1% rise estimated previously, reflecting improvement in construction output. Nonetheless, GDP growth is much slower than 0.4% rise in Dec quarter of 2017. Construction output fell 0.8% compared with the previous estimate of 2.7% fall in the last estimate. Flash data from Eurostat showed, eurozone inflation increased 2% in Jun 2018, in line with forecast, but higher than 1.9% in May 2018 due to oil prices. However, core inflation slowed marginally to 1% during the reported month from 1.1% in May 2018. 10
Global Equity Markets U.S. Indices 11 Global Indices 29-Jun-18 1-Week Return YTD Return Dow Jones 24,271.41-1.26% -1.81% Nasdaq 100 7,040.80-2.18% 10.07% FTSE 100 7,636.93-0.59% -0.66% DAX Index 12,306.00-2.18% -4.73% Nikkei Average 22,304.51-0.94% -2.02% Straits Times 3,268.70-0.57% -3.94% Source: Thomson Reuters Eikon Value as on Jun 29, 2018 Europe U.S. markets largely traded lower on lingering concerns of global trade war between the U.S. and other major economies. Dull U.S. economic data further dented sentiment including weaker than expected economic growth for the first quarter, fall in U.S. durable goods order for May and higher than expected rise in initial jobless claims for the week ended Jun 23. Concerns over global trade continued to weigh on investor sentiment. Weak economic data further dented sentiment, including U.K. consumer sentiment and Eurozone economic confidence data in Jun. Some respite was seen after China eased restrictions on foreign investments in various sectors and the European Union (EU) summit reached a consensus on immigration policy. Also, the People's Bank of China would lower the reserve ratios for some banks. Asia Asian markets mostly traded low on persisting trade tensions between U.S. and China and after the U.S. government hinted to block Chinese investment in U.S. technology firms. Concerns over U.S. proposal to review foreign investments by a committee in the U.S. and urging other nations to stop crude import from Iran further dented sentiment.
Global Debt (U.S.) US 10-Year Treasury Yield Movement 2.90 2.85 2.80 25-Jun 26-Jun 27-Jun 28-Jun 29-Jun Source: Thomson Reuters Eikon Yield on the 10-year U.S. Treasury bond fell 5 bps to close at 2.85% from the previous close of 2.90%. U.S. Treasury prices grew as market participants remained concerned over escalating trade war tensions between U.S. and China that boosted its safe haven appeal. Market participants remained wary that a global trade war will harm economic growth. Gains were extended following downbeat U.S. consumer spending data for May 2018. U.S. Treasury prices rose further as month- and quarter-end rebalancing added to buying of U.S. Treasuries. However, gains were capped on expectations that the U.S. Federal Reserve will continue to hike interest rates in 2018. 12
Global Commodity Prices Commodities Market Rebased to 10 Performance of various commodities Commodities Last Closing* 1-Week Ago Brent Crude($/Barrel) 76.78 73.41 Gold ($/Oz) 1,252.25 1268.49 Gold (Rs/10 gm) 30,341 30,484 Silver ($/Oz) 16.08 16.43 Silver (Rs/Kg) 39,221 39,626 Source: Thomson Reuters Eikon *Value as on Jun 29, 2018 13 Global Commodity Movement 10.60 4.59% 10.00-2.15% -1.28% 9.40 29-May-18 8-Jun-18 18-Jun-18 29-Jun-18 28-Jun-18 Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl) Source: Thomson Reuters Eikon Gold Gold prices moved down over the week on expectations of a faster pace of rate hike by the U.S. Federal Reserve (Fed). Meanwhile, the U.S. President has proposed to review foreign investments under the Committee on Foreign Investment in the U.S. Crude Brent crude prices remained higher following production problems at one of Canada's largest oil sands facilities and probable supply disruptions from Venezuela and Libya. Additionally, the U.S. Energy Information Administration (EIA) said in its weekly report that crude oil inventories fell by 9.891 million barrels in the week ended Jun 22. Baltic Dry Index The Baltic Dry Index fell 0.89% on the back of lower capesize and panamax activities.
Currency Prices ( in terms of INR) Currencies Markets Movement of Rupee vs Other Currencies Currency Last Closing* 1-Wk Ago US Dollar 68.58 67.77 Pound Sterling 89.93 89.96 EURO 79.85 78.86 100 JPY 62.02 61.61 Source: RBI Figures in INR, *Value as on Jun 29, 2018 14 Rebased to 10 10.20 9.95 9.70 29-May-18 8-Jun-18 18-Jun-18 29-Jun-18 28-Jun-18 USD GBP Euro JPY Source: RBI Currency Movement 1.26% 1.19% 0.67% -0.03% Rupee The rupee fell against the greenback and breached the 69-level for the first time ever following losses in the domestic equity market. Euro The euro fell initially against the greenback amid lingering concerns over a global trade war. However, the trend reversed later after European Union leaders reached an agreement on migration that eased concerns of a political crisis in Germany. Pound The pound weakened against the greenback amid uncertainty over the impact of Brexit on the British economy. Yen The yen weakened against the greenback after a moderation in the U.S. administration's approach to Chinese investment in the U.S.
15 The Week that was 25 th June to 29 th June
The Week that was (June 25 June 29) Date Monday, June 25, 2018 Tuesday, June 26, 2018 Wednesday, June 27, 2018 Thursday, June 28, 2018 Friday, June 29, 2018 Events Present Value Previous Value U.S. New Home Sales (MoM) (May) 6.70% -3.70% U.S. Consumer Confidence Index (Jun) 126.4 128.8 U.S. Advance Goods Trade Balance (May) -$64.8B -$67.3B U.S. Durable Goods Orders (May P) -0.60% -1.00% U.S. Pending Home Sales (YoY) (May) -2.80% 0.30% Germany Consumer Price Index (YoY) (Jun P) 2.10% 2.20% U.S. Gross Domestic Product Annualized (QoQ) (1Q T) 2.00% 2.20% U.K. GfK Consumer Confidence (Jun) -9.00-7.00 Germany GfK Consumer Confidence (Jul) 10.7 10.7 Japan Industrial Production (YoY) (May P) 4.20% 2.60% U.S. Personal Consumption (1Q T) 0.90% 1.00% Japan Construction Orders (YoY) (May) -18.70% 4.00% Japan Housing Starts (YoY) (May) 1.30% 0.30% Japan Consumer Confidence Index (Jun) 43.7 43.8 Germany Unemployment Change (Jun) -15K -11K Germany Retail Sales (YoY) (May) -1.60% 1.00% U.K. Gross Domestic Product (YoY) (1Q F) 1.20% 1.30% Eurozone Consumer Price Index Estimate (YoY) (Jun) 2.00% 1.90% 16
17 The Week Ahead 2 nd July to 6 th July
The Week Ahead Day Monday, Jul 2, 2018 Tuesday, Jul 3, 2018 Wednesday, Jul 4, 2018 Thursday, Jul 5, 2018 Friday, Jul 6, 2018 Event India Index of Eight Core Industries (May) India Nikkei Manufacturing PMI (Jun) China Caixin Manufacturing PMI (Jun) U.K. Markit Manufacturing PMI (Jun) U.S. ISM Manufacturing PMI (Jun) U.K. Markit Construction PMI (Jun) Eurozone Retail Sales (YoY) (Mar) U.S. Factory Orders (May) India Nikkei Service PMI (Jun) Japan Nikkei Composite PMI (Jun) China Caixin Composite PMI (Jun) U.S. MBA Mortgage Applications (Jun 29) Germany Factory Orders (YoY) (Mar) U.S. ISM Non-Manufacturing/Services Composite (Jun) U.S. ADP Employment Change (Jun) U.S. Unemployment Rate (Jun) Germany Industrial Production (YoY) (May) U.S. Trade Balance (May) 18
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