Indian markets consolidated after a recent sharp run-up with the Nifty ending at 9,108 with minor losses, about 0.6 percent down for the week.
The markets remained cautious and followed cues from U.S. markets as investors awaited a vote on the crucial healthcare bill.
Back home, Finance Minister Arun Jaitley’s assurance on faster resolution of banking NPAs revived market sentiment, especially the banking sector.
Crude oil prices fell below $48 a barrel this week, the lowest prices since November as an U.S. inventory glut and increased drilling activities failed to counter an output cut by OPEC and other producers.
OPEC officials are expected to meet this weekend in Kuwait to check compliance with output cuts on March 26.
The members will again meet on May 25 to decide whether to extend the cut. If the stock piles are still above their five-year average, it may decide to extend production cuts. This raises the risk of oil prices again moving up.
Further progress was made on the GST front. The Cabinet cleared four legislations for implementing GST.
It also approved amendments in the Customs and Excise Act relating to abolition of cesses and surcharges on various goods and services. Following this, the Centre will abolish 16 cesses and surcharges on excise and service tax, making GST the only unified tax structure.
On the stock specific front, Idea Cellular was the biggest loser in the index pack during the week, down 16 percent after details of a merger with Vodafone were announced. The markets felt that the synergy benefits estimated were ambitious.
PSU banking stocks were in the limelight after Finance Minister Arun Jaitley said that a new policy for resolution of non-performing assets will be announced soon by the government along with the Reserve Bank of India.
Yes Bank’s $750 million qualified institutional placement (QIP) received a good response as it got subscribed more than 2.5 times. With equity market sentiment nearing euphoric levels, this was an ideal time for a QIP issue.
The pharma sector hogged the limelight after Dr. Reddys’ and Divi’s Labs received fresh U.S. FDA alerts.
Divi’s Labs declined as much as 18 percent during the week to a two-year low after it received an import alert on the products manufactured at a company unit at Visakhapatnam.
I believe major pharma companies have entered a phase of “do or die” as far as U.S. FDA is concerned. The repeated threats will ensure larger pharma companies will fall in line and comply, even though it could mean higher capex and opex.
Avenue Supermarts received a stellar listing at a premium of over 100 percent from its issue price of 299 rupees.
Gains of this magnitude were expected, considering the kind of response it got during its IPO where it got subscribed a staggering 104.5 times. Though the valuations seem expensive, there seems to be enough appetite for this stock.
On the macro front, India’s current account deficit rose marginally to $7.9 billion (1.4 percent of GDP) in Q3 FY17 as against $7.1 billion (1 percent of GDP) in the same period last year and $3.4 billion (0.6 percent of GDP) in the preceding quarter.
Markets were positively surprised as the size of the deficit was smaller than anticipated, despite the pressure exerted by higher gold imports and crude oil prices.
U.S. President Trump's first major legislative initiative to overhaul the healthcare system ended in failure.
However, the reaction in the U.S. markets was not as anticipated as it recovered from lows. The focus has now shifted to tax reform as the market raises the probability of a tax cut later this year.
With the Q4 results season a few weeks away, markets still lack major triggers.
The focus is expected to shift to developments in the budget session of parliament that concludes on April 12 while volatility is expected to prevail on account of derivative contract expiry on Thursday.
In stock-specific action, Reliance Industries may react after SEBI imposed a 10 billion rupee penalty on it for a case dating back to 2007 where SEBI found RIL and 12 related entities guilty of fraudulent and manipulative trades.
It has prohibited the 13 entities, including RIL from dealing in equity derivatives in the F&O segment of the stock exchange, directly or indirectly, for a period of one year. However, Reliance is expected to appeal against the order.
Auto companies may be in focus on reports that the Supreme Court is considering an additional levy on BS-III vehicles for sale after the March 31 deadline. This is negative for auto companies as the levy could be high and it would mean huge discounts to clear the inventory.
The markets seem to have entered a stage of pullback that is not expected to last too long, looking at high valuations and impending earnings for Q4 FY17 that could eventually be the reason for a correction.
(Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant)