The U.S. Fed raised rates on expected lines but a hawkish stance for 2017 unnerved global stocks, which led to weakness in emerging markets including India.
A set of upbeat inflation data helped contain losses but the Nifty still ended down 1.5 percent to settle at 8,139. The rupee continued to hover below the 68 mark against the dollar due to active RBI intervention. Both FIIs and mutual funds continued to be net sellers.
The increase in U.S. federal funds rate to a range of between 0.50 percent and 0.75 percent was on expected lines, so volatility remained under control.
More critical was the Fed’s outlook for future rate hikes, given the expected rise in economic growth and inflation under a Donald Trump administration.
The Fed signalled that there could be three rate hikes next year, up from the two indicated in the September policy meeting.
This could rise even higher after the new administration takes office and the central bank reassesses the outlook for a Trump-driven inflation and growth. The dollar surged sharply, prompting a steep, extended decline in gold prices.
Back home, the government is likely to miss a self-imposed deadline to implement the goods and services tax (GST) from April 2017 after a meeting of central and state officials ended without deciding who would administer the tax.
In the ongoing fight to curb black money, the government has come up with a disclosure scheme with a twist.
Under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), a charge of 50 percent comprising of 30 percent tax, 33 percent surcharge and 10 percent penalty will be levied for those declaring unaccounted income. In addition to this, 25 percent of the amount declared will go into a non-interest bearing deposit for four years.
The pharma index has substantially underperformed benchmark indices this year with a loss of 11 percent as against a 2.4 percent gain by the Nifty.
The Indian pharma industry’s ongoing troubles with global regulators and increasing scrutiny by U.S. authorities for alleged price-fixing of generic drugs have not gone down well with investors.
The index lost 2.6 percent this week on a slew of negative news flows. Donald Trump’s probable policy changes may continue to exert downward pressure on the sector in the near term.
Auto sales data for the month of December would be keenly watched as the industry would witness the full effects of demonetisation. A few auto majors have planned a substantial hike in prices from January citing higher input costs. It seems this is a strategy to accelerate sales in December by offering discounts before the year ends.
On the macro front, WPI inflation stood at 3.15 percent for the month of November as compared to 3.39 percent for the previous month. CPI inflation dipped to a 24-month low of 3.63 percent in November aided by lower food prices.
Exports rose for the third straight month in November, recording a growth of 2.29 percent. Imports too increased by 10.44 percent to $33 billion.
A rise in gold imports by 23.24 percent to $4.36 billion pushed trade deficit to a two-year high of $13 billion as against $10.33 billion in the same month last year.
With the rise in prices of oil and other commodities, we may again get into an era of higher trade deficit unless the government’s programmes such as “Make in India” start firing on all cylinders.
In the coming week, PSU OMCs will be in focus as petrol and diesel prices have been raised by 2.21 rupees and 1.79 rupees respectively. The government had raised excise duty about nine times in the last 15 months. With an expected rise in crude prices due to output cut by OPEC members, one needs to see whether the government will reduce excise duty.
On the global macro front, U.S. home sales data for November, crude inventories as well as Q3 GDP data will be unveiled next week. Bank of Japan (BoJ) is widely expected to keep its negative interest rates unchanged at -0.10 percent, maintaining a status quo on its stimulus programme.
There are no big events to dictate market movements in India for the next couple of weeks and one would await fresh announcements from the government on demonetisation after December 30.
As there would be limited action from funds, we could see heightened activity in mid- and small-caps. The broader markets may trade cautiously on anticipation of adverse December data as well as quarterly earnings, but I would advise utilising this period of slackness to build a portfolio for the post budget scenario.