Indian indices, already reeling from the IL&FS crisis, falling rupee and high oil prices, got another jolt from a selloff in U.S. stocks following President Donald Trump's scathing remarks against the Federal Reserve. Adding to investors' concerns was the IMF’s prediction that the global economy will grow at a slower pace of 3.7 percent compared to its earlier expectation of 3.9 percent. This deepened the cuts during the first half of the week. The Nifty, however, rebounded from the extremely oversold territory to end the week 1.5 percent higher.
The BSE mid-cap and small-cap indices outperformed the benchmark index to gain about 2 percent. On the sectoral front, banks, autos, capital goods, power and oil & gas sectors outperformed the Nifty.
On the stock specific front, shares of NBFC companies rose after SBI announced that it could purchase up to 450 billion rupees in loans from NBFCs this year from an earlier target of 150 billion rupees. More banks are expected to follow SBI’s lead.
Crude oil prices fell after the IMF cut its forecast for global growth, auguring well for related stocks in aviation, paint and tyre sectors. Aviation stocks gained between 5-16 percent after the government cut the excise duty on aviation turbine fuel (ATF) from 14 percent to 11 percent.
Oil stocks too rose sharply, especially HPCL (up 30 percent for the week). OMCs and upstream oil companies gained on reports that they may not have to bear any additional burden of higher oil subsidies.
Tata Motors dropped after Jaguar Land Rover (JLR) continued to face significant macro as well as company-specific challenges. The stocks have plunged about 55 percent in the last 12 months.
On the results front, HUL and Zee Entertainment reported better-than-estimated numbers while TCS managed to meet expectations. Zee management reiterated a strong advertising and subscription outlook. Its digital platform ZEE5 also reported very encouraging numbers. HUL Q2 profits rose 19 percent to 15.25 billion rupees. All its three product divisions - home care, beauty and personal care - and food business delivered double-digit volume growth driven by rural demand. TCS traded weak despite a sober second quarter as analysts’ views remained divided.
On the macro front, CPI inflation marginally increased to 3.77 percent in September from 3.69 percent in August, driven mostly by food and beverages. IIP growth decelerated to 4.3 percent in August.
For the coming week, markets are expected to take cues from quarterly numbers reported by Indiabulls Housing Finance, Hero MotoCorp, Infosys, ACC, Reliance Industries and UltraTech Cement. Markets are bracing for more downgrades in the Q2 earnings season due to rising input costs and a sharp depreciation in the rupee.
On the macro front, India’s wholesale inflation for September and U.S. retail sales data for September will be announced on Monday. The U.S. Fed will release the minutes from its September 25-26 policy meeting on Wednesday.
Markets have shown signs of bottoming out, but we will need to keep a watch on oil and the rupee. It’s time to start nibbling in as a consolidation is expected in the coming week.
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.