Mar­kets surge as oil prices dip

Money Times - - Market Review - By Deven­dra A Singh

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

In­dia Fo­rum.

“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.

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