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REUTERS - A volatile week saw the Nifty ending lower for a fourth straight session on Friday to close at 9,574. Mid-cap and small-cap indexes underperformed the benchmarks on the back of negative global cues and pressure in metal and oil & gas stocks.
The MSCI’s decision to add China’s so-called “A” shares to its Emerging Markets Index also dented sentiments.
Crude oil prices dropped to their lowest level since August on expectations that supplies will exceed demand. Since the highs of around $55 a barrel in the beginning of the year, prices have fallen by more than 20 percent despite an OPEC-led agreement to limit oil production among major OPEC and non-OPEC countries.
This shows that market participants are not convinced the efforts will help prop up prices in a meaningful way in the short term as shale supply continues to rise in the U.S.
U.S. index provider MSCI said on Wednesday it would add 222 China-listed large cap stocks to its Emerging Markets Index, tracked by around $1.6 trillion in assets.
This may result in the reduction of India’s weightage in the index by 6.51 bps to 8.85 percent. The outflow from India is expected to be around $2.7 billion after the rejig.
PSU Bank stocks were in action after the RBI identified 12 cases that can be immediately taken up under the Insolvency and Bankruptcy Code (IBC) in an effort to speed up resolution of NPAs.
These account for about 25 percent of the current GNPA that owe 2.5 trillion rupees to the banking system.
The central bank’s move is expected to benefit banks in the longer term where stressed loans are in the range of 8-20 percent, though provisioning for these lenders are expected to shoot up in the short term.
Essar Steel, Bhushan Steel, Electrosteel Steels, Monnet Ispat, Bhusan Power and Steel, Jaypee Infratech, Jyoti Structures and Lanco Infra have been referred by lenders for resolution under the IBC.
Stock prices of debt-laden companies were in action as SEBI relaxed restructuring norms. The market regulator announced that new buyers of such companies will be exempt from mandatory open offer and preferential share issue requirements.
But markets seem to be missing the fact that when all stakeholders - creditors, lenders, employees - are expected to take a haircut, won’t the existing shareholders have to take a huge haircut too? In such cases, will these stocks have much value left?
Pharma stocks were also in focus after the head of the U.S. FDA said he was working on a “Drug Competition Action Plan” to cut prices of generics and will also to ease norms for companies’ entry in the generic drugs market.
IT sector lobby group NASSCOM forecast the sector's export revenues to grow at 7-8 percent for the year to March. Revenue for the domestic market is projected to grow at 10-11 percent in 2017-18.
Infosys is likely to be under the scanner after reports it had reached a $1 million settlement with the state of New York in a visa rules violation case.
Meanwhile, the government has hiked the minimum support prices for kharif crops by nearly 7 percent, the highest increase since the BJP came to power in 2014. Such hikes are typically inflationary but with a lag effect of around 6 months.
Another upside risk to inflation is the recent spate of farm loan waivers. Uttar Pradesh, Maharashtra, Punjab and Karnataka have announced waivers amounting to over 840 billion rupees, with more states expected to follow suit. On the bright side, consumption may see a boost as a result.
In the coming week, investors will keep a close eye on developments related to the implementation of the Goods and Services Tax and the monsoon’s progress.
Volatility is expected to remain high ahead of derivative contracts expiry on Thursday. On the macro data front, U.S. GDP data will be declared on Thursday and India’s IIP data for May will be out on Friday.
The next couple of weeks will be crucial for markets as the government rolls out India’s most ambitious tax reform since independence. Any disruption to the economy due to GST could result in a sharp reaction. I would advise investors to wait and watch what unfolds.
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.