Nifty, Sensex to move sideways – Weekly closing report

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24 June 2016   

I had mentioned in last week’s closing report that Nifty, Sensex were trendless. The major indices of the Indian stock markets were range-bound initially this week and suffered a sharp correction on Friday to close around 1% lower following a huge decline on Friday with the exit of Britain from the European Union. The trends of major indices in the course of the week’s trading are given in the table below:

Higher global markets and a healthy rise in global crude oil prices, and the strong trend in US premarket futures lifted the key equity indices on Monday. The markets opened low prompted by news of Reserve Bank of India (RBI) Governor Raghurram Rajan formally declining a second term. However, healthy buying in automobile, IT (information technology) and capital goods stocks helped pare initial losses.  There were major upcoming global event risks such as referendum in Britain on whether or not to stay as a part of the European Union (EU). Further, investors have been concerned about the US Federal Reserve Chairwoman Janet Yellen's testimony to the US Congress. Value buying after the initial downslide lifted prices. Besides, higher Asian and European markets buoyed domestic key indices. 

In addition, an appreciation in rupee's value after it fell to a low of 67.70 restored investors' risk taking appetite. The Indian rupee opened on a weak note as investors reacted to the news on Rajan's exit. It touched a low of 67.70 against a US dollar, but sales by exporters and sovereign intervention pushed it back below 67.40 levels on spot. IT and pharma sector stocks traded firm on continuous buying support, while banking stocks also traded with sideways to firm sentiments.

Profit booking, combined with negative global cues and a weak rupee, subdued the Indian equity markets on Tuesday resulting in the key indices trading marginally in the red during the mid-afternoon session with selling pressure witnessed in banking, consumer durables and capital goods stocks. The Asian markets gained on the back of increased chances of Britain staying on in the Eurozone. The island nation was to go in for a referendum on this on Thursday. However, profit booking, consolidation and negative European markets dragged the key domestic indices lower. Further, investors were seen concerned about US Federal Reserve Chairperson Janet Yellen's testimony to the US Congress. In its two-day policy meet last week, the US FOMC (Federal Open Market Committee) decided to maintain its key lending rates. The US Fed signalled its intention to limit the times it might increase key lending rates due to weak domestic jobs market. A hike in the US interest rates could potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India. Besides, lower global crude oil prices and a weak rupee eroded investors' risk-taking appetite.

Uncertain global situation, profit booking and a weak rupee depressed the Indian equity markets on Wednesday, as selling was witnessed in automobile, capital goods and FMCG (fast moving consumer goods) stocks. The BSE market breadth was skewed in favour of the bears -- with 1,597 declines and 988 advances. Initially, the key indices opened positive as investors believed that Britain's upcoming referendum on whether or not to stay on in the European Union would go in favour of staying with EU. India's cabinet on Wednesday cleared the base price for the country's largest spectrum auction to date, expected to fetch around $85 billion at the approved reserve price, address the menace of mobile phone call drops and give a push to 4G data communications. The approval was given at a meeting of the cabinet chaired by Prime Minister Narendra Modi.

On Thursday, both the key indices opened on a flat-to-positive note, in-sync with their Asian peers, as investors were seen optimistic that Britain would stay on in the European Union. Increased chances of Britain staying on in the European Union, combined with higher crude oil prices and a strong rupee, buoyed the Indian equity markets. The key indices closed the day's trade with appreciable gains, as healthy buying was witnessed in banking, automobile and healthcare stocks. The Indian rupee strengthened by 23 paise during the day's trade. It closed at 67.25-26 against a US dollar from its previous close of 67.48-49 to a greenback.

In a stunning reversal of what was widely expected, Britain on Friday decided to exit the European Union (EU), rattling global financial markets. Prime Minister David Cameron, who had strongly backed the "Remain" vote, said he was quitting. Britain's decision to opt out of the European Union (Brexit) rattled Indian financial markets on Friday, while pulling the rupee to around Rs68 to a US dollar. At one time, the Sensex was down by over 1,000 points but closed down 604 points. The pound sterling fell to its lowest level against the US dollar in 30 years -- and the euro was down by under 3% -- as the result of Thursday's historic referendum that ended Britain's 43-year association with the EU. England and Wales voted strongly to exit while Scotland and Northern Ireland backed the "Remain" vote. UK Independence Party leader Nigel Farage, who had been campaigning for 20 long years to dump the EU, called the Friday result UK's "Independence Day". The result was a narrow affair: 51.9% vote for Brexit against 48.1% vote for 'Remain'. Nikkei fell by 7.92%, Hang Seng by 2.92% and DAX was down 7% at the time of writing. FTSE was down 4.4% while IBEX of Spain was down by over 12 %. Gold was up by almost 5% while crude oil fell by almost 4%. We expect the Indian market to move sideways. 

Brexit rattles markets, pound stumbles 11%, Cameron resigns as Britain exits EU

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24 June 2016   

Britain's decision to opt out of the European Union-EU (Brexit) rattled Indian financial markets on Friday, shaving some over 1,000 points, or 4%, off Sensex, a key equities index, while pulling the rupee below the $68 mark. The British pound dropped 11% to its lowest level in over three decades as the market awoke to the shock of Brexit. The euro, seen to be vulnerable if Britain voted to leave the EU, was also down 3.2% against the US dollar, which also rose strongly against emerging market currencies. A stunning slide in sterling at 3.40am (London) saw the currency plummet below $1.40, and 20 minutes later, it had breached $1.35 to levels last seen in 1985. An hour later, the pound touched a new low at $1.3224. Following the poll results, British Prime Minister David Cameron announced his desire to resign from the post.

The BSE Sensex, which had closed on Thursday at 27,002, opened the next morning at 26,367. At noon, it had drifted sharply and was ruling at 26,002 points, down by 999 points, or 3.7%. At one point, it had lost nearly 1,050 points.

Each of the 30 stocks that go into the Sensex basket were in the red led by Tata Motors, which was down as much as 11.53% and Tata Steel, lower by 9.15%, due to their large presence in Europe in general and Britain in particular.

In the pre-open trades, the 30-scrip index was down as much as 634.74-points or 2.35%. An indication came from the SGX Nifty, which trades on the Singapore exchange and ahead of the opening bell in India, was down over 2.75%.

At the National Stock Exchange (NSE), where the 50-scrip Nifty had closed at 8,270 points, the opening bell was at 8,029. Thereafter, the index was ruling below the 8,000-points mark at 7,955 points, down 315 points, or 3.81%.

The rupee dived over 1.4% to 68.21 per US dollar, while the British pound -- that had rallied to nearly $1.5 in early trades -- fell sharply to its lowest level since 1985 at $1.35.

Both Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Dr Raghuram Rajan sought to calm the markets and assured there was no cause for panic as India's economic fundamentals remained strong and along with other macro indicators.

RBI's Rajan said investors need not panic over the rupee. "We are comfortable on foreign exchange reserves. We can use it when necessary," he added. "We also expect to see lesser swings in bond markets compared to peers."

Commenting on the Brexit, Arundhati Bhattacharya, Chairman of State Bank of India (SBI), the country's largest lender, said, "Uncertainty of any sort results in volatility and Brexit will be no exception. As risk aversion sets in, there would be a decline in financial markets and India would see this impact along with other nations. However as trade strategies are reworked there could be potential advantages in the form of better market access for India to EU and UK."

On Thursday, sensing that the chances of Britain remaining in the EU were higher, the investor mood had lifted the Sensex by 236.57 points or 0.88% while the wider 51-scrip Nifty edged up by 66.75 points or 0.81%.

This, despite foreign funds being net sellers of Indian equities on Thursday valued of Rs31.86 crore, as per data with the National Securities Depository Ltd (NSDL).

World reacts as Britain votes to leave EU
 

British PM Cameron, said he fought the referendum on the EU with "head and heart" and was proud of what he had done. "I formed a coalition, delivered a referendum in Scotland and gave the public a referendum on Europe. I have fought the referendum with head and heart. I always thought that one has to confront big decisions and not duck them," Cameron said as he announced his decision to step down as the Prime Minister.

International reactions poured in on Friday for the dramatic decision by British voters to leave the EU in a historic referendum.

"We respect the result. Now is the time for us to behave seriously and responsibly. (Prime Minister) David Cameron has his responsibilities for his country, we have our responsibilities for the future of the EU. You can see what is happening to sterling on the markets. I don't want the same thing to happen to the euro," European Parliament President Martin Schulz said early Friday morning after the results were announced.

Former First Minister and Scottish National party leader Alex Salmond said he believes Scotland must now stage a second independence referendum before the UKA’s exit from the EU is effected within the next two years.

Dutch Freedom Party leader Geert Wilders hailed the decision and said that it was the time for a referendum in the Netherlands.

"Hurrah for the British! Now it is our turn. Time for a Dutch referendum!" he tweeted

Marine Le Pen, the leader of France’s far-right Front National party, has welcomed the result. She said she also wants a similar referendum in France.

"From #Brexit to #Frexit: It's now time to import democracy to our country. The French must have the right to choose!" she leader tweeted.

Manfred Weber, leader of the largest group in the European Parliament, the EPP, said: "Exit negotiations should be concluded within 2 years at max. There cannot be any special treatment. Leave means leave."

German Foreign Minister Frank-Walter Steinmeier deemed it as a sad day for Britain and for the EU.

The head of Germany's Foreign Trade Association, Anton Boerner, said: "That is a catastrophic result for Britain and also for Europe and Germany, especially the German economy. It is disturbing that the oldest democracy in the world turns its back on us."

Gerard Araud, the French ambassador in Washington, tweeted: "Now to the other member states to save the EU from unravelling which excludes business as usual, especially in Brussels. Reform or die!"

The 'Leave' campaign won by 52% to 48% with England and Wales voting strongly for Brexit, while London, Scotland and Northern Ireland backed staying in the EU.

The referendum was held all across the country on Thursday. The turnout was 71.8% - with more than 30 million people voting.

Twitterati reaction on #Brexit

Brexit: Expect waves of contagion on Asia

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24 June 2016   

Britain's decision to opt out of the European Union-EU (Brexit) has rattled markets across the world. With the Brexit result only a few hours old and the situation extremely fluid it is extremely difficult to forecast the economic and financial impact on Asia, however Nomura feels financial, confidence and psychology channels are likely to be more important than trade linkages during these times.

"We should not underestimate the global contagion of the Brexit outcome," Nomura said, adding, "At first glance it would seem that the financial and economic impact of this result should be largely confined to the UK, given that its economic size is quite small at less than 4% of world gross domestic product (GDP) and world imports in 2015. However, we believe that this is too simplistic of a view and that the impact of the Brexit will be far reaching and long lasting."

According to Nomura report, there are two reasons for this. One, it expects non-trivial spill over to the euro area economy and financial markets and second, Brexit could further inflame anti-EU sentiments. 

It says, "While the value of merchandise exports from the rest of the EU to the UK is only 3% of the rest of the EU’s GDP, the UK’s position as a global financial hub – UK financial sector assets account for more than eight times of its GDP – leaves the rest of the EU much more exposed to the UK in terms of financial and investment linkages, in part reflecting the UK’s relatively liberalised domestic market and its strong legal framework and institutions. For example, one-third of UK's financial and insurance services exports are to the EU. Also more than half of the UK banking sector's cross-border lending is directed towards the EU, while almost half of the foreign direct investment (FDI) received by the UK comes from the EU."

 In addition, it says, Brexit could further inflame anti-EU sentiment in other EU member states, heightening fears of more countries opting to leave the union. "It is largely due to these non-trade-related channels that we expect a reduction in euro area GDP growth by 0.5 percentage points (pp) and a weaker EUR/USD.3 While UK share of global GDP is less than 4%, the rest of EU’s share is 18%, so once second-round effects on Europe are taken into account, the global impact is no longer trivial," it added.

Talking about the Brexit impact on India, Nomura says, as Indian economy is largely driven by domestic demand, the economic impact (of a Brexit) should be small relative to other open economies in Asia. “Still, India is not immune, as it has strong trade linkages with the EU and is susceptible to a loss of business confidence and a potential tightening of financial conditions. In our view, any adverse impact could be partly cushioned by upcoming domestic impulses to growth such as good monsoons, pay commission hikes and a likely easing of policies (both monetary and fiscal) but, nonetheless, we expect the growth recovery to slow.”

Nomura thinks a globally coordinated central bank response to a global financial market meltdown is quite likely, such as liquidity support through forex (FX) swap arrangements and possible FX intervention. But with policy credibility at such a low it is unclear how successful these emergency measures would ultimately be when there is extreme market risk aversion, it added.

On the Brexit result, Nomura says it has tentatively lowered its aggregate 2016 GDP growth forecast for Asia ex-Japan to 5.6% from 5.9%. The largest percentage point (pp) downgrades are for Hong Kong (1.0pp) and Singapore (0.7pp), followed by Taiwan (0.6pp), Thailand (0.5pp) and Malaysia (0.4pp). At the other end of the spectrum, Nomura says it has lowered its 2016 GDP growth forecast by only 0.2pp for Australia, China, Indonesia and the Philippines.

 Nomura also expects significantly more monetary policy easing in Asia. It says, dovish central banks, a weak growth outlook and a dovish Fed are bullish for most Asia rates. 

"Between now and year-end, we expect the Reserve Bank of India (RBI) to cut by 25 basis points (bp) from no cut previously, Korea by 50bp (25bp previously), Indonesia by 50bp (25bp), Taiwan by 50bp (37.5bp), Thailand by 50bp (50bp), Malaysia by 25bp (no cut previously). For China we have increased the number of RRR cuts by year-end from two to three, in addition to one interest rate cut. The only Asian central bank that we expect to keep rate on hold is in the Philippines. We now expect the Monetary Authority of Singapore to re-centre the mid-point of the S$NEER policy band lower at, or before, its October policy meeting," it added.

Talking about the economic implication on UK, the report says, the impact (of Brexit) is likely to be prolonged rather than short term. It said, "The uncertainty over the future of the UK means investors can be expected to demand a higher risk premium for holding UK assets, which coupled with the need to finance a 7%-of-GDP current account deficit, should result in a large – and persistent – depreciation of pound." 

"Beyond the trade channel, once financial, confidence and psychology channels are taken into account, we caution not to underestimate the depth and reach of financial market contagion to Asia," it concluded.  

EU referendum: Pound falls to 31-year low

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24 June 2016   

Fears of Britain exiting from the Europan Union (EU) as a result of a historic referendum held on Thursday, has pushed the value of the pound on Friday to its weakest level against the dollar in 31 years.

Market expectations that Britain is on the verge of voting to leave the EU sent the pound down to $1.35, depths it has not been plunged since 1985, the Independent reported.

The pound has already set a record intra-day swing of more than 10% between its high and low points. 

The value of the currency soared as high as $1.50 after polls released after 10 p.m. showed 'Remain' in the lead. But that mood changed rapidly when the actual count results started to come in.

Analysts have warned that the pound could fall up to 20% in the wake of a Brexit vote

Meanwhile, FTSE 100 Index future derivatives - which give an indication of where the stock market will open at 8 a.m. - have slumped 6.1%.

US stock-index futures are down more than 3%.

The pound touched a low of $1.3640, down as much as 9% on the session.

Chris Towner, chief economist at HiFX, said: “We still have a lot of votes to come, however the market cannot ignore the momentum and the reality of where the UK is heading.”

Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of ML and hence ML is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

Nifty, Sensex will remain range-bound – Thursday closing report

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I  had mentioned in Wednesday closing report that Sensex, Nifty is trendless. Today the indices moved flat upto 12.30 pm after which it gained momentum and edged higher to cover up more than the past two days losses. The gain has been backed by the move of Britons to vote on a referendum on whether Britain should remain a part of the European Union.

Initially, both the key indices opened on a flat-to-positive note, in-sync with their Asian peers, as investors were seen optimistic that Britain will stay on in the European Union.

Increased chances of Britain staying on in the European Union, combined with higher crude oil prices and a strong rupee, buoyed the Indian equity markets on Thursday. The key indices closed the day's trade with appreciable gains, as healthy buying was witnessed in banking, automobile and healthcare stocks. 

A couple of opinion polls in Britain have indicated that the 'Remain in the EU' camp has gained momentum. The island nation will announce referendum results on this issue on Friday.

The Indian rupee strengthened by 23 paise during the day's trade. It closed at 67.25-26 against a US dollar from its previous close of 67.48-49 to a greenback.

In terms of investments, the provisional data with exchanges showed that the foreign institutional investors (FIIs) bought stocks worth Rs 81.87 crore, and the domestic institutional investors (DIIs) purchased scrip worth Rs 203.56 crore.

The top gainers and top losers of the major indices are given in the table below:

The closing values of the major Asian indices are given in the table below:

How online shopping is changing rural India

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I stay in rural Maharashtra. We have reached a stage in life where we hardly shop but sometimes need specialty items like books, computer peripherals, herbal teas and the like. These items are not available in our rural town of Phaltan where we live and so we do online shopping. In the last year or so we have discovered the power of such shopping.

In the recent past, we would go once a month to Pune (110 km away) to buy a few things. Now because of online shopping, such trips have drastically reduced - and for good reason. It takes about three hours to reach Pune, driving over pot-holed roads, which produces back pain. Besides, the traffic jams and pollution in or near Pune add to the discomfort. Also going to Pune for a few items was quite a chore and waste of energy and time. Now online shopping allows us the luxury of getting all sorts of items at home.

Such online shopping is being discovered in all rural towns and areas around the country. However, for such e-commerce to take place, it is necessary to have a good internet connection, ability to sift through the various items offered and zeroing on selection of quality material. All this is possible by googling the items and comparing their prices and specifications.

I find that the rural population is learning this search-and-pick at amazing speed - which is reflected in the increase of sales in rural areas via online shopping. They also order items seen on TV ads and those passed by word of mouth. With mobile penetration in rural India, this shopping is also facilitated by various smartphone apps so that desktop PCs are not required.

Nevertheless, this online shopping is fuelling consumerism in rural areas and is the engine which is helping it to urbanize. It is happening because it produces a win-win situation. For example, one can get quality goods at substantial savings as they are usually much cheaper than what one would pay in a shop in Pune or other big cities. Besides, most of the time the goods are shipped free and cash-on-delivery basis. Also, the time and energy used in actual shopping and going to the big city are saved.

This is the reason why e-commerce has spread so rapidly all over the world and rural India is only now getting the benefits of this revolution.

The foray of the online companies in rural India is also fuelling the job market - it is providing employment to a large number of rural youth as delivery boys. Besides, it has given a shot in the arm to loss-making India Post since their large network of postmen is being used by e-commerce companies to penetrate rural areas.

However, such shipments are energy intensive. For a small item the packing is almost three-to-four times its size. This is waste of material, and adds to the weight of shipment and to the transport energy cost.

Secondly, quite a number of times, the item which is manufactured locally is shipped to big cities and then again to the final destination. For example, we ordered a packet of mango pickle (of a brand that is not available in Phaltan) which is manufactured about 45 km from our rural town. This packet was shipped to Bangalore from where it came to us. This is a real wastage of energy in transport but the shipping company may be finding it cheaper to do so for whatever reasons. Yet with all this travelling around we got this packet at nearly half the price of what we would have paid in a Pune shop.

So, how do companies like Amazon, Flipkart, Snapdeal and others who have big online presence in India still make money on such transactions? Data from their financials reveals that presently all of them are losing money - primarily because it is the start of e-commerce boom in India.

However, they feel that there is a great future in online shopping and with time, their profits will increase. Thus only those companies with deep pockets will survive since they alone have the staying power to penetrate the rural markets.