Sen­sex re­gains

Money Times - - Market Outlook | Market Review - By Deven­dra A Singh

The Sen­sex ad­vanced 530.5 points to set­tle at 31814.22 while the Nifty closed at 9979.7 gain­ing 191.1 points for the week end­ing Fri­day, 6 Oc­to­ber 2017.

The RBI kept the pol­icy repo rate un­der the liq­uid­ity ad­just­ment fa­cil­ity (LAF) un­changed at 6% on the ba­sis of an as­sess­ment of the cur­rent and evolv­ing macroe­co­nomic sit­u­a­tion at its meet­ing on Wed­nes­day, 4 Oc­to­ber 2017. Con­se­quently, the re­verse repo rate re­mains at 5.75% and the marginal stand­ing fa­cil­ity (MSF) rate and the bank rate at 6.25%.

The RBI in its key mon­e­tary pol­icy state­ment said that it now ex­pects in­fla­tion in the sec­ond half of the cur­rent fis­cal to range be­tween 4.2-4.6%, up from its pre­vi­ous es­ti­mate of 4-4.5%. The in­fla­tion fore­cast pushed 10-year bond yields up by 6 bps to close at 6.7%.

The rise in crude oil prices may push up re­tail in­fla­tion. But ex­clud­ing food and fuel, a broad-based rise in the CPI in­fla­tion was also recorded.

Fur­ther, the cen­tral bank re­vised its gross value-added (GVA) growth fore­cast to 6.7% for the cur­rent fis­cal from 7.3% ear­lier.

“The im­ple­men­ta­tion of the GST so far also ap­pears to have had an ad­verse im­pact, ren­der­ing prospects for the man­u­fac­tur­ing sec­tor un­cer­tain in the short-term. This may fur­ther de­lay the re­vival of in­vest­ment ac­tiv­ity, which is al­ready ham­pered by stressed bal­ance sheets of banks and cor­po­rates”, the pol­icy state­ment said. The RBI hopes that the teething prob­lems linked to the GST and band­width con­straints may be re­solved soon al­low­ing growth to ac­cel­er­ate in the sec­ond half of the fis­cal year. But in­put costs have risen faster than ex­pected and com­pa­nies’ pric­ing power had fallen, which could af­fect the growth num­bers, it stated.

The MPC (mon­e­tary pol­icy com­mit­tee) was of the view that var­i­ous struc­tural re­forms in­tro­duced re­cently could be growth-aug­ment­ing over the medium-to-long-term by im­prov­ing the busi­ness en­vi­ron­ment, en­hanc­ing trans­parency and in­creas­ing for­mal­i­sa­tion of the econ­omy.

RBI Gov­er­nor Ur­jit Pa­tel also said that many of the high-fre­quency in­di­ca­tors sug­gested that there was an uptick in growth. The IIP num­bers re­leased on Tues­day showed growth at 4.9%. In the sec­ond quar­ter, the ser­vices sec­tor had shown a healthy growth rate and there was a pos­si­bil­ity that a cycli­cal up­turn would hap­pen in the next two quar­ters. On the macro-eco­nomic data front, the Nikkei-Markit Man­u­fac­tur­ing PMI com­piled by IHS Markit held steady at 51.2 for Septem­ber 2017 as it was for last month. Nikkei In­dia Ser­vices PMI Busi­ness Ac­tiv­ity In­dex re­turned to a growth of out­put (50.7 in Septem­ber 2017 v/s 47.5 in Au­gust 2017). Ac­cord­ing to Mor­gan Stan­ley,

In­dia’s digi­ti­sa­tion drive could pro­vide a boost of 5075 bps to GDP growth in the com­ing decade.

“We es­ti­mate that digi­ti­sa­tion will pro­vide a boost of 50-75 bps to GDP growth and fore­cast that In­dia will grow to $6 tril­lion econ­omy and achieve up­per-mid­dle in­come sta­tus by 2026-27”, Mor­gan

Stan­ley Head In­dia Re­search and In­dia Eq­uity Strate­gist

Rid­ham De­sai said.

“We ex­pect In­dia’s real and nom­i­nal GDP growth to com­pound an­nu­ally by 7.1% and 11.2% re­spec­tively over the com­ing decade”, he added.

In the lat­est re­leased re­port

“In­dia's dig­i­tal leap - The multi-tril­lion-dol­lar op­por­tu­nity”, De­sai said that apart from some short-term teething prob­lems in­clud­ing im­ple­men­ta­tion of GST, there is scope for vis­i­ble shifts in eco­nomic ac­tiv­ity start­ing in

2018 which would even­tu­ally lead In­dia to be the top five eq­uity mar­kets in the world with a mar­ket cap­i­tal­i­sa­tion of $6.1 tril­lion and the third­largest listed fi­nan­cial ser­vices sec­tor around the

globe with a mar­ket cap of $1.8 tril­lion by 2027.

In­dia’s con­sumer sec­tor is also likely to add about $1.5 tril­lion over the next ten years. “We project gross FDI in­flows amount­ing to $120 bil­lion by FY27 al­most dou­ble the cur­rent 12-month trail­ing run rate of $64 bil­lion”, De­sai said. Ac­cord­ingly, he also noted that stock mar­kets are likely to re­main ro­bust as stronger eco­nomic growth should drive stronger cor­po­rate earn­ings growth.

“The coun­try is also likely to wit­ness strong do­mes­tic par­tic­i­pa­tion in eq­ui­ties. We project eq­uity sav­ing of $420 bil­lion$525 bil­lion over the next ten years, v/s the re­spec­tive $60 bil­lion and $120 bil­lion that house­holds and for­eign port­fo­lios in­vested over the pre­vi­ous ten years”, the agency said. While the re­port ex­udes con­fi­dence that In­dia's growth story is to con­tinue, it also iden­ti­fied cer­tain risks. It noted that GST is ex­pected to dis­rupt smaller busi­nesses caus­ing job losses and a gen­eral slow­down in eco­nomic growth. The In­dian Stock mar­ket re­mained closed on Mon­day, 2 Oc­to­ber 2017, on ac­count of Gandhi Jayanti. Key in­dex surged on Tues­day, 3 Oc­to­ber 2017, on fresh buy­ing by traders ahead of the RBI’s pol­icy meet. The Sen­sex was up 213.66 points (+0.68%) to set­tle at 31497.38.

Key in­dex gained on Wed­nes­day, 4 Oc­to­ber 2017, on ex­tended buy­ing. The Sen­sex was up 174.33 points (+0.55%) to close at 31671.71.

Key in­dex fell on Thurs­day, 5 Oc­to­ber 2017, on marginal profit-book­ing. The Sen­sex was down 79.68 points (-0.25%) to close at 31592.03.

Key in­dex ad­vanced on Fri­day, 6 Oc­to­ber 2017, on buy­ing of eq­ui­ties. The Sen­sex was up 222.19 points (+0.70) to close at 31814.22.

Events like na­tional and global macro-eco­nomic fig­ures will dic­tate the move­ment of the global mar­kets and in­flu­ence in­vestor sen­ti­ment in the near fu­ture.

On the in­fla­tion data, the gov­ern­ment will re­lease data based on WPI and CPI for Septem­ber 2017 for ur­ban and ru­ral In­dia by mid-Oc­to­ber 2017.

Fur­ther, USA’s macro-eco­nomic data for Septem­ber 2017 is sched­uled for re­lease in the first week of Oc­to­ber 2017. Also, the Fed­eral Open Mar­ket Com­mit­tee (FOMC) will is­sue min­utes of its last meet on Wed­nes­day, 11 Oc­to­ber 2017. US mar­kets will re­main closed on Mon­day, 9 Oc­to­ber 2017, on ac­count of hol­i­day for Colum­bus Day.

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