The new year began on a flattish note with the Nifty gaining a marginal 0.2 percent for the week. The broader markets outperformed, with the mid-cap and the small-cap indexes gaining 1.4 percent and 2.5 percent respectively.
The Nifty ended the week at 10,559 after touching record highs during the week.
Sentiments were supported by hopes that the government may meet the fiscal deficit target of 3.2 percent of GDP. A Fitch report that India will be the fastest-growing emerging market economy over the next five years also boosted sentiment.
The government announced that the budget session of parliament will start Jan. 29 and the annual budget presented on Feb. 1. For the week, FIIs bought shares worth 17.38 billion rupees while DIIs were net sellers to the tune of 9.36 billion rupees.
Crude oil prices hit fresh two-and-a-half-year highs and were at levels last seen at the start of the commodity slump in 2014/2015, with markets tightening amid tensions in Iran and the ongoing OPEC-led production cuts. Brent crude futures hit $67 a barrel. The rupee ended at 63.36 per dollar, levels last seen in April 2015.
On the global front, U.S. stocks soared in anticipation of the effects of the tax cut. Last month, President Donald Trump signed a bill that slashed corporate tax bills from 32 percent to 21 percent.
The week saw the release of minutes from December’s FOMC meeting, in which the U.S. Federal Reserve raised its benchmark federal funds rate by 25 bps. The minutes revealed optimistic assessments of the U.S. economy and higher projections for GDP stemming from the anticipated effects of the new tax policy.
The first advance estimates released by India’s Central Statistics Office peg GDP growth for 2017/18 at 6.5 percent compared with the provisional 7.1 percent growth for 2016/17.
On the stock-specific front, low base effect due to demonetization led to double-digit growth in automobile sales for December. Two- wheelers and commercial vehicle sales grew by an impressive 40 percent and 55 percent respectively. Passenger vehicle sales saw double-digit growth of around 10 percent.
Public sector banks were in focus on talks of the government announcing recapitalization bond issue worth 800 billion rupees ($12.62 billion) to help them meet the capital adequacy ratio.
So far, the government has infused 90 billion rupees into PSU banks against the target of 100 billion rupees for bank recapitalisation this fiscal. The government had announced a 2.11 trillion rupee bank recapitalisation plan seeking to stimulate the flow of credit to spur private investment.
Infosys was in focus after its new CEO and MD Salil S Parekh took charge of his new role at the company.
Idea Cellular gained after reports that Vodafone Plc and privately held promoter group entities of Idea Cellular will together infuse close to 141.4 billion rupees in their respective telecom operations to pare debt.
IT stocks were in the spotlight after the Trump administration’s new proposal to not extend H-1B visa of those waiting for permanent residency or green card is likely to affect more than 500,000 Indians working in the United States.
Dr Reddy’s slipped as the establishment inspection report (EIR) issued in 2015 to its Duvvada facility in Andhra Pradesh indicates the status continues to be classified as Official Action Indicated (OAI).
On the macro front, India's index of eight core industries grew at its fastest pace in 13 months in November on higher production in the steel and electricity sector. The Nikkei India Services PMI stood at 50.9 in December, up from 48.5 in November as new orders broadly stabilised.
The markets on Monday are expected to react to U.S. non-farm payrolls and unemployment data.
The U.S. economy added 148,000 jobs in December, well below expectation of 190,000 jobs. The unemployment rate held at a 17-year low.
The coming week marks the beginning of the third quarter of the FY18 earnings season with heavyweights such as TCS, Infosys and IndusInd Bank scheduled to release their earnings.
On the macro front, the government will announce IIP data for November on Friday.
IIP grew by 2.2 percent in October, easing from an upwardly revised 4.1 percent gain in September. CPI inflation for December is also due on Friday. CPI increased 4.88 percent in November, higher than 3.58 percent in October.
The current fiscal strain will have a bearing on Budget 2018. We may have a pre-budget rally, but it could be muted due to fears of additional taxes on capital market participants and a focus on rural economy. I would advise selective buying and booking profits wherever appropriate.
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.