Markets hit new record highs on domestic buying after the ruling BJP retained power in Gujarat and also won in Himachal Pradesh, while optimism over the U.S. tax reform bill added further momentum.
The Nifty ended the week higher by 1.6 percent at 10,493 after soaring past the 10,500 mark. Both mid- and small-cap indices outperformed as they rose by 3.5 percent and 4.5 percent respectively. The rupee closed little changed as traders remained on the sidelines ahead of Christmas and year-end festivities.
The minutes of the RBI's December meeting showed that most members of the monetary policy committee are concerned about recent fiscal developments and inflation outlook. This led to speculation that the government may cut spending to maintain the fiscal deficit target this year.
One asset class that has been in the limelight for the past few weeks is crypto-currency. Bitcoin was on every speculator’s radar after it surged to almost $20,000 recently. But ever since the CME started offering Bitcoin futures, the crypto-currency has lost almost 40 percent of its value.
In stock specific action, agro-based companies like Jain Irrigation Systems and Kaveri Seeds were in focus on expectation of greater concessions from the government after the Gujarat state election results indicated that the BJP was losing ground in rural areas due to the agrarian distress.
Investors now expect the budget in February to focus on concessions for the farming sector, which could benefit agro companies. With eight states going to the polls next year, a rural focus may help the BJP.
The RBI initiated Prompt Corrective Action (PCA) against Bank of India for mounting bad loans, placing various restrictions on it, including on issuance of fresh loans and dividend.
Nine other state-owned lenders - IDBI Bank, Indian Overseas Bank, Bank of Maharashtra, United Bank of India, Dena Bank, Corporation Bank, UCO Bank, Central Bank of India and Oriental Bank of Commerce - have also been placed under PCA due to high stressed assets. Their gross NPAs stand between 12-25 percent.
Following media speculation about the RBI’s intention to close such banks, the central bank clarified that no such move was under consideration.
Reliance Infrastructure stocks were in focus after it signed an agreement with Adani Transmission for sale of its integrated Mumbai power business. The agreement includes Reliance Infra’s integrated assets in power generation, transmission and distribution at Mumbai. This will help the company to attain debt free status with a 30 billion rupee surplus.
Wind power tariff hit another record low of 2.43 rupees per unit in the recent 500 MW wind auctions held by Gujarat. We should witness faster rollout of wind projects to achieve the government’s commitment to fight climate change.
The government is likely to finalise the National Telecom Policy, 2018 by March next year in view of rapid technological advancements in the sector. The Department of Telecom has formed various working groups on different themes for this purpose.
Meanwhile, India’ manufacturing sector outlook looks slightly less optimistic in Q3FY18 given the impact of an appreciating rupee on exports, lingering issues with implementation of GST and subdued demand in several sectors, a private quarterly survey by FICCI showed. The number of respondents expecting higher orders in the third quarter dropped to 42 percent from 47 percent in the second quarter.
The coming week could see some volatility ahead of derivative contract expiry on Thursday. However, investors are likely to remain on sidelines due to lack of fresh cues.
The proceedings of the ongoing winter session of the parliament will be keenly watched. The Rajya Sabha remains stalled after a week with the opposition Congress demanding an apology from Prime Minister Narendra Modi for attacking his predecessor Manmohan Singh during the Gujarat poll campaign. The government may find it difficult to pass important bills on its agenda due to the ongoing ruckus.
On the macro data front, IIP for the month of November 2017 will be released on Friday. It increased 4.7 percent in October. On the fiscal data front, the government will release data for revenue from GST during the week. The important U.S. initial jobless claims for the week ended December 22 will be released on Thursday.
The Nifty’s fresh high has surprisingly not resulted in corresponding gains for the “in-demand” sectors. Instead, the recovery of laggards like IT and pharma helped the index breach the 10,500 mark. Markets could hold on to their gains in the short term due to the absence of any immediate trigger.
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.