Markets surge as oil prices dip
The Sensex gained 289.68 points to settle at 35962.93 while the Nifty closed at 10805.45 rising 111.75 points for the week that ended on Friday, 14 December 2018. Consumer inflation or Consumer Price Index (CPI) eased to a 17-month low of 2.33% in November 2018. Wholesale inflation or the Wholesale Price Index (WPI) fell to 4.64% in November 2018 from 5.28% in the previous month. Inflation in manufactured products eased to 4.21% in November. Double-digit inflation in fuel and power was offset by easing food prices in November. Falling crude oil prices of late have eased inflationary pressure on India, who is a major fuel importer. Brent crude prices declined to $52/barrel.
Mr. Shaktikanta Das was named as the new RBI Governor by the center on Tuesday, 11 December 2018. Two weeks back, the RBI in its fifth bi-monthly monetary policy review for FY19 kept the key interest rates unchanged. The Repo rate stands at 6.5%, the Reverse Repo rate stands at 6.25% and the Cash Reserve Ratio (CRR) stands at 4%. The RBI intends to start lowering the mandatory bond holding ratios of banks by 25 bps each quarter from Q4FY19 onwards until it reaches 18% of deposits.
The RBI held India’s economic growth forecast for FY19 at 7.4%. It also slashed inflation projection to 2.7-3.2% by March 2019 from its prior forecast of 3.9-4.5%. But it also foresaw inflation picking up again projecting a rate of 3.84.2% in H1FY20 with risks tilted to the upside. Moody’s Investors Service said in its latest released report ‘Annual Banking System Outlook on India’ that the operating environment will be stable, supported by robust economic growth. But rising interest rates are a risk. India’s real gross domestic product (R-GDP) for FY19 and FY20 is estimated to grow at 7.2% and 7.4% respectively. Moody’s asserted that liquidity constraints in Non-Banking Financial Institutions (NBFIs) will be a drag on the country’s growth.
“The asset quality will remain stable but weak as clean-up of legacy problem loans nears completion and corporate health improves. Banks have recognized the bulk of legacy problem loans and will start making recoveries from large resolved non-performing loans (NPLs), which will help shore up asset quality, although the degree of success in resolution of large NPLs will determine the extent of asset quality improvements,” the report stated.
It said that the financial health of corporates will limit new NPL formation while adding that stress among NBFIs is a risk.
“Public sector banks will continue to grapple with weak capitalization and depend on government capital injections to meet minimum capital requirements. Profitability will improve but remain weak due to high credit costs. Net interest margins (NIMs) will widen marginally thanks to a reduction in NPLs and a strengthening of banks pricing power amid woes surrounding debt ca pital markets which make bank loans more attractive for corporate borrowers,” it added. Moreover on India’s telecom sector, investment of $100 billion in the telecom industry as envisioned in the National Digital Communications Policy 2018 (NDCP) will result in an increase of $1.21 trillion in the country’s GDP on a cumulative basis. “Currently, India is a $2.5 trillion economy. A 10% hike in investment in the country’s telecom sector may lead to an increase of
3.3% in the country’s GDP on an average,” noted the joint report by Indian
Council for Research on International Economic
Relations and Broadband
“The multiplier effect of investment in communications implies that the $100 billion investment envisioned in the new policy could cumulatively add $1.21 trillion (Rs.7890711 crore) to the GDP over the duration of the proposed investment,” the report said.
“These are significant impacts and yet could be underestimated given that the penetration of internet is still below international levels,” the report added.
Aruna Sundararajan, Sec.,
Dept. of Telecommunications, said
“While the first wave of mobile revolution heralded a new age of growth and dynamism to the economy, the second wave is now being led by the growth of internet subscribers and investments in telecommunication
infrastructure leading to exponential benefits to the economic and GDP growth. It is critical therefore for states across the country to leverage it to ensure greater direct and spill-over benefits.”
Key index corrected on Monday, 10 December 2018, on a huge sell-off by foreign funds. The Sensex was down 713.53 points to close at 34959.72.
Key index closed higher on Tuesday, 11 December 2018, on fresh buying of equities. The Sensex was up 190.29 points to close at 35150.01.
Key index advanced on Wednesday, 12 December 2018, on positive US-China trade cues and strong buying by the FIIs. The Sensex was up 629.06 points to close at 35779.07.
Key index gained on Thursday, 13 December 2018, on falling global crude oil prices. The Sensex was up 150.57 points to close at 35929.64.
Key index settled higher on Friday, 14 December 2018, on extended buying. The Sensex was up 33.29 points to close at 35962.93.
National and global macro-economic figures and news flow from events like Brexit will dictate the movement of the markets and influence investor sentiment in the near future. On the Rupee scenario, market participants will closely watch the Indian rupee trend against the US Dollar, which is hovering around 71.
The RBI’s next monetary policy review meet is scheduled to be held on 5 February 2019.
On the global front, United States and other Euro-nations’ macro-economic data for November 2018 is scheduled to be released this week. China’s macro-economic data for November 2018 will be released in the next few weeks.