News U Can Use
February 9, 2018
The Week that was…
5
th
February to 9
th
February
2
Indian Economy
The Monetary Policy Committee (MPC) in its sixth bi-monthly policy review kept key policy
repo rate unchanged at 6.0% and also retained its “neutral” stance. Consequently, the reverse
repo rate stood unaltered at 5.75%, and the marginal standing facility (MSF) rate and bank
rate each remained at 6.25%. Five policymakers were in favour of the monetary policy
decision and one advocated for a policy rate increase of 25 bps.
MPC noted that the inflation outlook is surrounded by several uncertainties on the upside and
stated that there is need for vigilance around the evolving inflation scenario in the coming
months. According to the MPC, the staggered impact of HRA increases by various state
governments may push up headline inflation further over the baseline in 2018-19. Also, a
pick-up in global growth may exert further pressure on crude oil and commodity prices,
thereby impacting domestic inflation.
The Nikkei India Services Purchasing Managers’ Index (PMI) Business Activity Index rose to
51.7 in Jan 2018 from 50.9 in Dec 2017. This marked the fastest growth in a three-month
period. The upside was driven by a renewed increase in new business. However, though
growth rates for activity and employment accelerated since Dec, it remained weaker than their
respective long-run survey averages. Meanwhile, the Nikkei India composite PMI output index
fell to 52.5 in Jan from 53.0 in Dec.
The government has budgeted for Rs. 900 billion to be paid as compensation to states
towards losses because of Goods and Services Tax (GST) in FY19, up 47% from Rs. 613
billion it plans to distribute in FY18.
3
Indian Equity Market
4
Domestic Equity Market Indices
Indices 9-Feb-18 1 Week Return YTD Return
S&P BSE Sensex 34,005.76 -3.03% 0.57%
Nifty 50 10,454.95 -2.84% 0.19%
S&P BSE Mid-Cap 16,634.91 0.36% -6.73%
S&P BSE Small-Cap 18,172.98 1.82% -5.74%
Source: MFI Explorer
NSE Advance/Decline Ratio
Date Advances Declines
Advance/Decline Ratio
05-Feb-18 684 1160 0.59
06-Feb-18 303 1540 0.20
07-Feb-18 1387 402 3.45
08-Feb-18 1497 301 4.97
09-Feb-18 849 933 0.91
Source: NSE
Indian equity markets witnessed heavy
fall during the week as finance
minister’s statement in the Union
Budget 2018-19 regarding increase of
government spending for rural areas
on one hand and slowing of the pace
of fiscal consolidation on the other
kept investors wary.
Additionally, worries over probable rate
hike by MPC in its the upcoming
meeting to combat rising inflationary
pressures impacted markets.
Rising inflation and speculation over
imminent rate-hike by the U.S. Federal
Reserve in its Mar 2018 meeting
dented sentiment.
Ratios
S&P BSE
Sensex
Nifty 50
S&P BSE
Mid Cap
S&P BSE
Small Cap
P/E
23.88 25.27 38.72 103.87
P/B
3.14 3.53 2.86 2.59
Dividend Yield
1.16 1.08 0.85 0.62
Source: BSE, NSE Value as on Feb 9
, 2018
Indian Equity Market (contd.)
5
Sectoral Indices
Indices
Last Returns (in %)
Closing 1-Wk 1-Mth
S&P BSE Auto
25,044.24 -0.67% -5.68%
S&P BSE Bankex
28,882.40 -3.44% -0.57%
S&P BSE CD
21,218.79 -0.53% -11.79%
S&P BSE CG
19,240.43 -3.51% -4.07%
S&P BSE FMCG
10,527.24 -1.48% -2.94%
S&P BSE HC
14,348.00 1.99% -4.32%
S&P BSE IT
12,116.95 -3.02% 6.39%
S&P BSE Metal
15,100.57 0.59% -4.26%
S&P BSE Oil & Gas
15,541.87 -0.80% -4.66%
Source: Thomson Reuters
Eikon Value as on Feb 9, 2018
On the BSE sectoral front, barring S&P BSE
Realty (2.13%), S&P BSE HC (1.99%), S&P
BSE Metal (0.59%) and S&P BSE Power
(0.12%), all the major indices closed in the
red.
S&P BSE Capital Goods (-3.51%) stood as
the major loser followed by S&P BSE
Bankex (-3.44%) , S&P BSE IT (-3.02%)
and S&P BSE Teck (-2.73%).
Indian Derivatives Market Review
Nifty Feb 2018 Futures were at 10,469.7 points, a premium of 14.75 points above the spot
closing of 10,454.95. The turnover on NSE’s Futures and Options segment stood at Rs. 42.16
lakh crore as against Rs. 33.80 lakh crore in the week to Feb 2.
The Put-Call ratio stood at 0.81 compared with the previous week’s close of 0.79.
The Nifty Put-Call ratio remained unchanged from the previous week’s close of 1.09.
Domestic Debt Market
6
Debt Indicators
(%)
Current
Value
1-Wk
Ago
1-Mth
Ago
6-Mth
Ago
Call Rate
5.89 5.92 5.87 5.91
91 Day T-Bill
6.39 6.42 6.28 6.12
7.80% 2021, (5 Yr GOI)
7.09 7.16 7.04 6.43
7.17% 2028, (10 Yr GOI)
7.49 7.56 7.16 --
Source: Thomson Reuters
Eikon
Value as on Feb 9, 2018
Initially, bond yields rose as investors
were cautious ahead of the Monetary
Policy Committee’s (MPC) policy
review meeting that was scheduled on
Feb 6 and Feb 7.
Soon, yields fell following weakness in
crude oil prices that eased concerns
about inflation gains in India. Lower
than scheduled debt sale in FY18 amid
high yields also boosted sentiment.
Yields dropped further as the policy
meeting by MPC was less hawkish
than feared by investors. Also, no
clarity on future rate hike from MPC
soothed investors’ nerves.
Yield on the 10-year benchmark paper
(7.17% GS 2028) fell 7 bps to close at
7.49% from the previous week’s close
of 7.56% after trading in a range of
7.45% to 7.62%.
7.43
7.54
7.65
5-Feb 6-Feb 7-Feb 8-Feb 9-Feb
Yield in %
10 -Yr Benchmark Bond ( % )
Source: CCIL
Domestic Debt Market (Spread Analysis)
7
Maturity
G-Sec Yield
(%)
Corporate Yield
(%)
Spread
bps
1 Year 6.71 7.60 89
3 Year 7.19 7.72 54
5 Year 7.51 7.84 33
10 Year 7.72 8.09 37
Source: Thomson Reuters
Eikon Value as on Feb 9, 2018
Yields on gilt securities fell across
maturities by up to 15 bps, barring 19-
year paper that increased 3 bps and 30-
year paper was steady. Highest fall was
seen on 8-year paper.
Corporate bond yields dropped across the
curve by up to 8 bps. Highest decline was
on 5-year paper, while lowest fall was on
6-year paper.
Spread between AAA corporate bond and
gilt expanded across the segments by up
to 11 bps, leaving 1-year paper that
contracted 3 bps.
-15
-10
-5
0
5
6.00
6.50
7.00
7.50
8.00
3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs
India Yield Curve Shift (%) (W-o-W)
Change in bps 09-Feb-18 02-Feb-18
Yield in %
Change in bps
Source: Thomson Reuters Eikon
Regulatory Updates in India
8
MPC has decided to remove the currently applicable loan limits of Rs. 50 million and Rs. 100
million per borrower to Micro, Small and Medium Enterprises (Services) for classification under
priority sector. Hence, all bank loans to MSMEs, that are engaged in providing services as
defined in terms of investment in equipment under Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006, shall qualify under priority sector without any credit caps.
The Securities and Exchange Board of India (SEBI) has asked fund houses to prominently
disclose the total expense ratio (TER), on daily basis, for all schemes under a separate head,
"Total Expense ratio", on their websites. The disclosure will increase transparency in mutual
fund schemes and make them more investor friendly.
The government announced that the proposed long-term capital gains tax on equity holdings
will apply on profits made from sale of shares on or after Apr 1, 2018. However, it stated that
the acquisition cost for the purpose of computing the capital gains will be the higher of the
actual purchase price or the maximum traded price on Jan 31, 2018.
Government has granted infrastructure status to affordable housing. This would allow these
projects to avail benefits such as lower borrowing rates, tax concessions and increased flow of
foreign and private capital. The government has made several efforts to create enabling
environment and ecosystem to promote affordable housing. This announcement comes as a
part of such effort.
Regulatory Updates in India (contd..)
The Reserve Bank of India has raised the forex futures trading limit to $100 million. The central
bank expects that increase in the upper limit would lure business away from regional financial
hubs as it is expected to boost daily trading volumes on domestic exchanges. The move will
also create arbitrage opportunity between onshore and offshore markets. Non-resident Indians
as well as high networth individuals will be encouraged to take positions in the currency futures
market.
The Insolvency and Bankruptcy Board of India (IBBI) has revised its guidelines, thereby
delegating more responsibilities on the resolution professional and with stricter time lines. IBBI
has directed the resolution professional to provide evaluation matrix to prospective resolution
applicants and appoint two registered valuers to arrive at liquidation value and fair value of the
company. Also, the resolution professional has been directed to submit resolution plan
approved by the Committee of Creditors to the Adjudicating Authority at least 15 days before
the expiry of the maximum period, which is 270 days from the time of being admitted.
A dozen state-run banks have been directed by the Reserve Bank of India (RBI) to retire high-
cost debt such as additional tier I capital. These banks are under regulatory watch for mounting
bad loans. The direction comes as a part of the austerity drive that seeks to restore commercial
viability for the stressed lenders. These banks that would receive an injection of federal funds
would now have to retire high-cost debt well before their maturity.
9
Global News/Economy
According to a survey of purchasing managers, U.S. ISM's non-manufacturing index came in at
59.9 in Jan 2018, up from Dec 2017’s reading of 56 (seasonally adjusted). This marked 96
consecutive months of growth in the non-manufacturing sector. New orders index stood at 62.7
in Jan, higher than reading of 54.5 (seasonally adjusted) in Dec.
Jerome Powell has replaced Janet Yellen and has been sworn in as the chief of U.S. Federal
Reserve. Jerome Powell will now lead the U.S. central bank and manage raising interest rates.
The Bank of England kept key interest rate and asset purchase programme on hold in its latest
policy meeting. The Monetary Policy Committee voted unanimously to maintain the benchmark
rate at 0.50% at the rate setting meeting. The bank had raised its key rate in Nov 2017, thereby
marking the first hike in a decade. Meanwhile, policymakers also unanimously decided to
maintain the quantitative easing at GBP 435 billion.
According to the People's Bank of China, China's monetary policy will be stable and neutral in
2018. Also, People's Bank of China stated that comprehensive tools will be applied to maintain
liquidity in the banking system and promote reasonable growth in social financing. The central
bank stated that it will strengthen macro-prudential management of shadow banking and real
estate financing.
10
Global Equity Markets
11
Global Indices
Indices
9-Feb-18
1-Week
Return
YTD
Return
Dow Jones
24,190.90 -5.21% -2.55%
Nasdaq 100
6,412.68 -5.14% -1.52%
FTSE 100
7,092.43 -4.72% -7.27%
DAX Index
12,107.48 -5.30% -5.93%
Nikkei Average
21,382.62 -8.13% -9.03%
Straits Times
3,377.24 -4.32% -0.75%
Source: Thomson Reuters Eikon
Value as on Feb 9, 2018
U.S.
U.S. markets witnessed selling pressure
amid concerns over rising inflation and
speculation over imminent rate hike by
the U.S. Federal Reserve in its
upcoming policy meeting in Mar 2018.
Buying interest was hardly impacted by
data showing U.S. ISM services index
hit its highest level since mid-2005, a
sign of further strength of the nation's
economy.
Europe
Weakness in Wall Street had a major impact on the European markets as well. Worries
over imminent rate hike by the U.S. Fed kept investors on the sidelines. Investors are also
keeping an eye on political developments in Germany. Also, the second phase of Brexit
talks commenced in London during the week, with the European Union chief negotiator
repeating his call for more clarity from the U.K. on the country’s position.
Asia
Asian markets too felt the heat of the strong sell off in Wall Street. Speculation over
imminent rate hike by the U.S. Fed in Mar 2018 raised concerns over foreign fund flow,
particularly from the U.S., in emerging markets. Better than expected growth in China’s
exports in Jan 2018 hardly improved sentiment.
Global Debt (U.S.)
12
Yield on the 10-year U.S. Treasury
bond fell 2 bps to 2.83% from the
previous close of 2.85%.
U.S. Treasury prices rose as volatile
equity market prompted investors to
purchase less risky bonds. Also, some
investors were reluctant to sell the
U.S. Treasury bonds until they see
signs of stabilization.
However, the trend reversed after the
lawmakers managed to end a brief
government shutdown and fund the
government until Mar 23, 2018.
At the end, gains were limited after the
Bank of England stated that interest
rates would need to rise sooner,
thereby adding to expectations of
lower stimulus from central bank
globally.
2.70
2.80
2.90
5-Feb 6-Feb 7-Feb 8-Feb 9-Feb
US 10-Year Treasury Yield Movement
Source: Thomson Reuters Eikon
Commodities Market
13
Performance of various commodities
Commodities
Last Closing 1-Week Ago
Brent Crude($/Barrel)
62.98 67.13
Gold ($/Oz)
1,316.64 1,332.92
Gold (Rs/10 gm)
30,007 30,452
Silver ($/Oz)
16.35 16.59
Silver (Rs/Kg)
37,792 39,200
Eikon Value as on Feb 9, 2018
Gold
Gold prices moved down as upbeat
weekly jobless data reaffirmed optimism
over the health of the U.S. labour
market. The positive data contributed to
the speculation of a rate hike by the
U.S. Federal Reserve (Fed) in its
upcoming meeting in Mar 2018.
Crude
Brent crude prices plunged over the
week after data from U.S. Energy
Information Administration (EIA)
indicated U.S. domestic crude
production hit a record of 10.25 million
barrels per day (bpd) for the week
ending Feb 2.
Baltic Dry Index
The Baltic Dry Index gained 1.0% on the
back of improved capesize and
panamax activities.
9.00
9.50
10.00
10.50
9-Jan-18 19-Jan-18 29-Jan-18 8-Feb-18
Global Commodity Movement
Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl)
Global Commodity Prices
Rebased to 10
Source: Thomson Reuters Eikon
-6.18%
-1.22%
-1.45%
9-Feb-18
Currencies Markets
14
Movement of Rupee vs Other Currencies
Currency Last Closing 1-Wk Ago
US Dollar
64.37 64.08
Pound Sterling
89.71 91.34
EURO
78.89 80.03
100 JPY
59.06 58.36
Source: RBI Figures in INR , Value as on Feb 9, 2018
Rupee
The Indian rupee weakened against the
U.S. dollar following strong U.S. jobs data
in Jan 2018 and increase in demand for
greenback as risk appetite for equity
deteriorated.
Euro
Euro weakened against the U.S. dollar as
the latter gained on worries that the U.S.
Fed might raise interest rates faster to
counter signs of wage pressure.
Pound
Pound weakened against the greenback
on negative news about Brexit
negotiations and expectations of
slowdown in growth of U.K. economy in
the first quarter of 2018.
Yen
Yen strengthened against the U.S. dollar
as its safe-haven appeal increased
following huge losses in the global equity
market.
9.70
10.10
10.50
10.90
9-Jan-18 19-Jan-18 29-Jan-18 8-Feb-18
USD GBP Euro JPY
Source: RBI
Currency Prices ( in terms of INR)
Rebased to 10
Currency Movement
0.45%
-1.78%
-1.43%
1.20%
9-Feb-18
15
The Week that was…
5
th
February to 9
th
February
The Week that was (Feb 5 – Feb 9)
16
Date Events
Present
Value
Previous
Value
Monday,
Feb 5, 2018
India’s Nikkei Services PMI (JAN) 51.70 50.90
• Japan Nikkei Composite PMI (JAN) 52.80 52.20
• U.S. ISM Non-Manufacturing/Services Composite (JAN) 59.90 56.00
Tuesday,
Feb 6, 2018
• Germany Factory Orders (YoY) (DEC) 7.20% 9.10%
• Germany Markit Construction PMI (JAN) 59.80 53.70
• Germany Markit Retail PMI (JAN) 53.00 55.10
Wednesday,
Feb 7, 2018
Reserve Bank of India’s Interest Rate Decision 6.00% 6.00%
• Japan Leading Index (DEC P) 107.90 108.20
Germany Industrial Production (YoY) (DEC) 6.50% 5.50%
Japan Housing Loans (YoY) (4Q) 2.90% 3.00%
Thursday,
Feb 8, 2018
U.K. Bank of England Bank Rate 0.50% 0.50%
China Trade Balance CNY (JAN) 135.80b 361.98b
• Japan Eco Watchers Survey Current (JAN) 49.90 53.90
Germany Trade Balance (DEC) 18.2b 23.7b
U.S. Initial Jobless Claims (3 FEB) 221k 230k
Friday,
Feb 9, 2018
• China Consumer Price Index (YoY) (JAN) 1.50% 1.80%
U.K. Industrial Production (YoY) (DEC) 0.00% 2.60%
• U.K. Construction Output (YoY) (DEC) -0.20% 0.80%
17
The Week Ahead
12
th
February to 16
th
February
18
The Week Ahead
Day Event
Monday,
February 12, 2018
India’s Industrial Production YoY (December)
India’s Consumer Price Index Inflation Rate YoY (JAN)
U.S. Monthly Budget Statement (JAN)
Tuesday,
February 13, 2018
U.K. Consumer Price Index (YoY) (JAN)
Japan Gross Domestic Product Annualized (QoQ) (4Q P)
Japan Machine Tool Orders (YoY) (JAN P)
U.K. House Price Index (YoY) (DEC)
Wednesday,
February 14, 2018
Germany Gross Domestic Product (YoY) (4Q P)
Eurozone Gross Domestic Product (YoY) (4Q P)
U.S. Consumer Price Index (YoY) (JAN)
U.S. Retail Sales Advance (MoM) (JAN)
Japan Machine Orders (YoY) (DEC)
Thursday,
February 15, 2018
India’s Wholesale Price Index Inflation YoY (JAN)
U.S. Initial Jobless Claims (10 FEB)
U.S. Industrial Production (MoM) (JAN)
Friday,
February 16, 2018
U.S. University of Michigan Sentiment (FEB P)
U.K. Retail Sales Ex Auto Fuel (YoY) (JAN)
U.S. Housing Starts (MoM) (JAN)
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19
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