REUTERS - Markets snapped their longest stretch of weekly gains since January after the rupee declined to a fresh low, raising concerns about the outlook on economic and earnings growth.
Negative global cues due to heightened worries over international trade conflicts also impacted sentiments. The Nifty fell 0.78 percent to settle at 11,589 during the week. Mid-caps and small-caps underperformed the benchmark indices, falling 2.2 percent and 1.7 percent respectively.
The Nifty Pharma index rose for the fourth week in a row, tracking the weakness in the rupee against the dollar. The Nifty PSU Bank index was the top loser with fall of 5.4 percent.
The rupee slipped beyond the 72 mark during the week despite the RBI’s intervention. Emerging market currencies have suffered a rout on concerns of higher crude prices and tariff wars.
High-stakes negotiations to revamp the North American Free Trade Agreement (NAFTA) continued between the United States and Canada, with Trump hinting that he is prepared to move forward even without Canada's participation. Currency turmoil in Argentina and Turkey continued to put pressure on the global markets as investors feared a wider spill-over effect.
Back in India, August automobile sales moderated due to the combined impact of a delayed festive season, severe floods in Kerala and heavy rainfall in several other states.
The passenger vehicle segment remained stable, with two-wheeler volume growth healthy, reflecting continuing rural strength and aggressive discounting by Bajaj Auto.
Commercial vehicle sales also continued to remain resilient despite uncertainties over a change in axle load norms, helped by elevated government spending on infrastructure.
Nitin Gadkari, Minister for Road Transport and Highways, announced a slew of measures for the automobile industry, including exemption of permit requirements for commercial vehicles running on alternative fuels like CNG, biofuels, ethanol and methanol.
The move is intended to increase public interest in alternative fuels that are less polluting. Bajaj Auto announced shortly after the announcement that it will expand its three-wheeler and quadricycle capacity to one million units.
The company is the largest manufacturer of auto rickshaws and has a market share of 86 percent in three-wheelers running on alternate fuel. The policy is also expected to benefit Mahindra & Mahindra.
Meanwhile, Oil Minister Dharmendra Pradhan announced the setting up of 10,000 CNG stations in 10 years, which augers well for Maruti Suzuki, which has a significant portfolio of CNG models.
Separately, the automaker was in news on reports that it had commenced a nation-wide fleet testing of electric vehicles as it works toward its commitment to roll out EVs in India by 2020.
However, the company’s existing range seems to be getting saturated and the onslaught in the popular range from existing players as well as future entrants like Kia would threaten expansion of margins for Maruti. This is reflecting in the weakness of the stock.
Pharma stocks were in focus after regulatory pressure resurfaced for Sun Pharma and Cadila. Sun Pharma came under pressure after the U.S. FDA issued six observations for its Gujarat-based Halol unit.
However, the stock recovered most of its losses as the street seems to be confident about the company resolving the issue. The facility had received clearance in June and the stock has rallied nearly 40 percent since.
The coming week is a truncated one as markets will remain shut on Thursday for Ganesh Chaturthi. Macroeconomic data, currency movement and global cues are expected to dictate the trend during the week.
Market participants will also track news on the U.S.-China trade front as reports suggest that Trump is set to impose tariffs on an additional $267 billion of Chinese goods.
Markets will also react to India’s current account deficit, which widened to $15.8 billion in the quarter ending June as compared to $15 billion in the same quarter a year before.
The widening of the CAD is primarily because of higher trade deficit. Most analysts, however, believe the situation is not alarming.
On the economic data front, IIP for July will be unveiled on Wednesday, while retail and wholesale inflation for August will be declared on Wednesday and Friday respectively.
Markets got a scare last week, which initially put in doubt the recovery we had seen since early August. However, the short-covering and recovery in the second half of the week have put markets back on track.
While we may see some weakness based on macro data on Monday, I still believe that the negatives of high oil prices and currency weakness have been well-absorbed and momentum should continue till Diwali.
(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.)