Indian shares snapped five straight weeks of gains due to weak global cues and cautiousness during the second leg of the earnings season. Markets were also overbought after the long rally. The Nifty ended the week lower by 0.69 percent at 10,618, with mid-cap and small-cap indices continuing to underperform.
The dollar climbed against a basket of currencies, and the rupee remained above 66.60 on back of continuous FII outflow. The Indian currency’s weakness in the last three weeks has caught most importers on the back foot and every decline is currently used to buy hedges.
Automakers started FY19 on a strong note with most companies reporting double-digit growth for April 2018. The strong volume growth for CVs can also be attributed to a low base as April 2017 sales had been impacted by a shift to BS-IV. Two-wheeler volumes were better than expected whereas the PV segment showed a mixed performance.
In stock specific action, Interglobe Aviation remained in focus after reports emerged that SEBI is investigating a 6.1 percent tumble in the company’s stocks on April 27, as well as the delay in disclosure of President Aditya Ghosh’s exit.
Shares were also dumped after it reported weak Q4 FY18 earnings which were sharply below estimates. Jet Airways also cracked on expectations of similarly poor numbers. The Q4 FY18 yields have been weak as airlines have not been able to pass on the impact of higher fuel prices. It is concerning as we have seen the departure of a number of CEOs of domestic airlines recently, the latest being Air Asia. The question which comes up is whether there is something seriously wrong with the sector.
PC Jewellers had a mad run during the week and it swayed wildly on either side, resulting in the company losing half its market cap in the last 10 days and down 70 percent since January 19. For the week, the stock was down 26 percent, which could have been higher if not for the 44 percent bounce on Friday. Investors are concerned about the company’s governance after one of its founders gifted some shares to family members.
Most jewellery stocks have been under the scanner following the Nirav Modi episode. It could be difficult for most of them to get back on investors’ good books. The only company which stands out for now is Titan.
The GST Council in its 27th meeting approved the principles for filing of new return design based on the recommendations of the group of ministers on IT simplification. Keeping in view the record production of sugar in the current sugar season, and consequent depressed sugar prices and build-up of sugarcane arrears, the council discussed the possibility of imposing a sugar cess and reduction in GST rate on ethanol.
The government has, however, deferred the decision and instead constituted a five-member panel to look into the matter.
Sugar stocks were in the limelight after the government unveiled a special subsidy scheme for the sector (55-rupee subsidy for every tonne of cane sold to the mills by growers). Shares of sugar companies rose but soon dipped after speculation that the government may impose a cess to raise money needed for the subsidy.
GST collection in the month of April crossed the one trillion-rupee mark for the first time since it was rolled out on July 1 last year. Even after adjusting for seasonality, March numbers are impressive. GST collection will perk up in FY19 with the government introducing anti-evasion measures like TDS, TCS and credit matching etc. The e-way bill will also help improve compliance.
On the macro front, the services sector continued to improve in April, with business activity rising at a faster pace, supported by new order growth. The Nikkei India Services Business Activity Index rose to 51.4 in April from 50.3 in March. Factory growth too accelerated in April on strong domestic demand and output.
The Nikkei Manufacturing PMI rose to 51.6 in April from 51 in March. The production of eight core industries, comprising 40.27 percent of the weight of items included in the IIP, increased 4.1 percent in March 2018.
The results season is picking up steam. Some of the key corporates announcing their numbers in the coming week are ICICI Bank, Tata Chemicals, Tata Coffee, ABB India, Jubilant FoodWorks, Eicher Motors, Jindal Steel & Power, Adani Enterprises, Asian Paints, Nestle India, Tata Communications, Titan, Zee Entertainment, Gillette India and Tata Global Beverages.
On the macro front, the government will announce IIP data for March on Friday. It grew 7.1 percent in February from a year earlier. CPI inflation data will also be announced on the same day.
The broader markets have started to correct, especially the mid-caps and small-caps, although the headline index has been holding comparatively steady. This correction is a buying opportunity because post the Karnataka state election results in the middle of May, there may not be too many obstacles for the markets in the near future.
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.