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Events to watch this week
Crude oil prices decline more than 20% from recent peaks
Brexit negotiations begin
BOE governor, economist split over rate moves
MSCI admits China’s A shares
Fed’s Powell OK with relaxing Volcker rule
The Week ahead:
Mon, 26 Jun
Durable goods orders
Tue, 27 Jun
Case-Shiller home price index
Wed, 28 June
Trade balance, pending homes sales
Thurs, 29 June
Thurs, 29 June
Economic sentiment indicator
Thurs, 29 June
Q1 gross domestic product revision
Fri, 30 June
Q1 gross domestic product revision
Fri, 30 June
Preliminary June consumer price index
Fri, 30 June
For the week,Global equities slipped this week, but not before the S&P 500 Index posted a fresh record high early in the week. Falling oil prices have been a cause for investor concern. West Texas Intermediate crude continued its decline, slipping to $42.65 a barrel on Friday from $44.70 a week ago, trading near a seven-month low. The yield on the US 10-year Treasury note was virtually unchanged, while volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), declined slightly to 10.6 from last Friday’s 10.9.
CRUDE OIL-Rs 2781barrel
MARKET ROUND UP
A divergent trend was witnessed as the barometer index, the S&P BSE Sensex, settled with modest gains while the Nifty 50 index registered small decline in the week ended Friday, 23 June 2017. The BSE Mid-Cap and the S&P BSE Small-Cap indices underperformed the Sensex during the week. Trading activity was quiet during the week in absence of major triggers.
In the week ended Friday, 23 June 2017, the Sensex rose 81.81 points or 0.26% to settle at 31,138.21. The Nifty 50 index fell 13.10 points or 0.14% to settle at 9,574.95. The S&P BSE Mid-Cap index fell 223.52 points or 1.51% to settle at 14,583.81. The S&P BSE Small-Cap index fell 285.34 points or 1.82% to settle at 15,381.90. Both these indices underperformed the Sensex.
Key benchmark indices logged strong gains on first trading day of the week on Monday, 19 June 2017 on upbeat global markets. The Sensex gained 255.17 points or 0.82% to setle at 31,311.57, a record closing high for the index. Amid a divergent trend among various index constituents, the key benchmark indices finished a shade lower in a quiet session of trade on Tuesday, 20 June 2017. The Sensex fell 14.04 points or 0.04% to settle at 31,297.53, its lowest closing level since 16 June 2017.
Macro Economic Front:
On the Economic Front,Developments related to roll-out of Goods and Service Tax (GST), progress of monsoon rains, domestic and global macroeconomic data, trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), the movement of rupee against the dollar and crude oil price movement will dictate trend on the bourses in truncated trading week ahead. Domestic stock markets will remain closed on Monday, 26 June 2017 on account of Id-Ul-Fitr (Ramzan Id).
The market may remain volatile as traders roll over positions in the futures & options (F&O) segment from the near month June 2017 series to July 2017 series. The near month June 2017 derivatives contract expire on Thursday, 29 June 2017.
The progress of monsoon rains will be closely watched. The IMD said that for the country as a whole, cumulative rainfall during this year's monsoon upto 22 June has been 4% above the Long Period Average (LPA). The June-September southwest monsoon is critical for the country's agriculture because a considerable part of the country's farmland is dependent on the rains for irrigation.
Major Action &Announcement:
Axis Bank fell 1.06%. The bank has revised Marginal Cost of Funds based Lending Rate (MCLR) rates in the short tenors. The 1 year MCLR stands unchanged at 8.25%. New rates are effective from 17 June 2017. The announcement was made after market hours on Friday, 16 June 2017.
ICICI Bank lost 7.9%. The company announced that the Committee of Executive Directors of the Bank at its meeting held on 20 June 2017 has approved the proposal for fund raising by way of issuance of senior unsecured long term bonds in the nature of debentures in single/multiple tranches on private placement basis.
Index heavyweight and housing finance major HDFC advanced 0.72%. The company filed term sheet for issuing secured redeemable non-convertible debentures worth Rs 700 crore on private placement basis. HDFC said that the coupon rate on debentures is 7.21% per annum. The tenor of the debentures is one year 93 days, with redemption date being 24 September 2018. The announcement was made after market hours on 21 June 2017.
Tata Motors lost 2.72%. As per reports the Tata Group may be considering listing its luxury carmaker Jaguar Land Rover through an initial public offer. According to reports, senior executives of Tata Group have held preliminary internal discussions over listing of the British luxury automobile company Jaguar Land Rover (JLR) over an international stock exchange, which may potentially include New York Stock Exchange or London Stock Exchange. Tata Motors had bought an ailing JLR in a surprise move in 2008 for $2.4 billion from Ford Motor Co.
Adani Ports and Special Economic Zone (APSEZ) rose 1.35%. The company said Moody's has changed its outlook on the company to stable from negative. Moody's has re-affirmed its investment grade rating at Baa3 on APSEZ. The announcement was made during market hours on 19 June 2017.
Drug major Lupin lost 6.2%. Media reports suggested that Lupin'sPithampur Unit 3 has been issued 5 observations by the US Food and Drug Administration (USFDA). Meanwhile, Lupin announced during market hours on 22 June 2017, the launch of its Desoximetasone Cream USP, 0.05% and Desoximetasone Cream USP, 0.25% having received an approval from the United States Food and Drug Administration (FDA) earlier.
In Overseas Markets,growth in the eurozone's manufacturing and services sector slowed in June, data showed on Friday, 23 June 2017. Markit's flash eurozone PMI composite output index came in at 55.7 in June, a five-month low.
A report on weekly jobless claims showed that fewer than 250,000 Americans applied for unemployment benefits in mid-June. Initial jobless claims rose by 3,000 to 241,000 in the seven days stretching from 11 June to 17 June 2017, Labor Department said on Thursday, 22 June 2017.
Global Economic News:
Crude oil prices deepen slump
The price of a barrel of West Texas Intermediate crude oil extended its decline this week amid rising global inventories. WTI prices have fallen in excess of 25% from their $58.30 high, which was posted on the year’s first trading day. Energy company shares have been under pressure, while spreads in the sector’s high-yield bond market have widened over benchmark Treasury yields this week. The sharp decline in energy prices will make it that much more difficult for the US Federal Reserve to reach its 2% inflation target in the foreseeable future.
Brexit talks underway
Negotiators from the United Kingdom and the European Union met on Monday in the first formal Brexit negotiating session. The one breakthrough from the talks was the UK’s acquiescence to EU demands that the divorce bill must be settled before the EU begins to negotiate a new trade arrangement. Late in the week, Prime Minister Theresa May met with EU leaders in Brussels and laid out her plan to protect the rights of the three million EU citizens living in the UK, allowing them permanent residence. May called on leaders to grant British citizens living in the EU the same rights.
To hike or not to hike?
That is the question on the minds of the members of the Bank of England’s Monetary Policy Committee. While UK growth has suffered a downturn of late, inflation has surged on the heels of a tumble in the pound’s exchange rate. Rising import prices have pushed consumer prices up 2.9% versus year-ago levels, prompting three members of the short-staffed MPC to vote for a rate hike last week against five votes to leave policy unchanged. The divide deepened this week as the Bank’s two most high-profile officials came out on opposite ends of the question of whether rates should be raised this year. BOE governor Mark Carney made the case that now is not the time for rate hikes given low wage growth and mixed signals on consumer spending and business investment. BOE chief economist Andy Haldane countered that it would be prudent to raise rates in the second half of this year to counter the inflation surge.
China gets nod from MSCI
After years of fighting for inclusion in MSCI’s influential stock indices, China finally received word that some of its A shares will be included in the indices in mid-2018. Just fewer than half of the 448 A shares will be included in the indices and at an initial weighting of just 5% of each stock’s market cap. These restrictions are an effort by MSCI to incentive China to further liberalize its stocks markets.
US banks clear first round of stress tests
Thirty-four big US banks passed the first round of the Fed’s stress test this week. Next week, the central bank will announce whether it will allow the banks to return capital to shareholders. Some banks may begin to reduce their capital if the Fed approves. That could be seen by markets as a sign of confidence that the banking system is strong and positioned well to withstand a significant economic downturn.
GLOBAL CORPORATE NEWS
Room to relax
Fed governor Jerome Powell told a congressional committee that US regulators have room to relax or eliminate some aspects of the Volcker rule, which is intended to limit banks’ ability to make speculative bets with insured deposits. Regulators are looking for ways to simplify the complicated rule and may exempt small banks from having to comply, Powell said.
Treasury secretary rejects one-off ultra-long bond
US treasury secretary Steven Mnuchin this spring floated the idea that the United States is considering issuing very-long-dated bonds. This week he said the government will only issue ultra-long maturity Treasuries if there is sustained appetite for the securities. Mnuchin said his department is reaching out to investors in order to gauge demand for instruments with maturities between 50 and 100 years, but any move to issue very-long-term debt would not be a one-off. Apparently there is at least some investor demand for long paper, as Argentina issued 100-year bonds this week despite having defaulted six times in the last century. The issue, although rated below investment-grade, was heavily oversubscribed.
NEW 52-WEEK HIGH BSE (A):
NEW 52-WEEK LOWS BSE (A):
MAJOR WEEKLY GAINERS IN BSE A CATEGORY(%):
MAJOR WEEKLY LOSERS IN BSE A CATEGORY:
Eyes will be set on the certain US economic data releases are:
Durable Goods Orders
Tuesday (27 June)
Wednesday (28 June)
MBA Mortagage Applications
Thursday (29 June)
Friday (30 June)
Technically Pick of the week:
Accumulate ITC Ltd For Target Rs.363.00
* ITC Closed 0.7% up in trade today at Rs311 compared to flat close in benchmark Nifty.
* We expect ITC to benefit in GST regime as tax outgo is similar to the current tax structure. It also provides more clarity and uniformity in taxes across states.
* Increase salience of DSFT cigarettes and strong pricing power would aid growth in volumes and profitability in the coming quarters.
* We expect ITC to post revenues and net profit of Rs449.4bn and Rs118.2bn respectively in FY18.Based on expected EPS of Rs9.7, the stock currently trades at an attractive P/E multiple of 32x FY18E earnings, which is at a 20% discount to sector multiples.
* We maintain BUY rating on the stock with target price of Rs363.
Markets to make a cautious start on mixed global cues
The Indian markets gave up all their gains in final hours to end flat with just a positive bias in last session, tracking weak cues from European markets. Today, the start is likely to remain cautious tailing mixed global cues. Markets however, may get some support with Reserve Bank Governor Urjit Patel’s statement that he is not 'overly pessimistic' about employment scenario in the IT sector, pointing out that mushrooming startups can compensate for job losses. Meanwhile, the Union Cabinet passed a resolution expressing gratitude to Chief Ministers of States and others for their cooperation in introduction of GST, calling it the biggest tax reform in independent India.
The banking stocks will be in focus with credit rating agency ICRA stating that asset quality pain for banks is expected to continue in financial year 2018 due to restructuring by banks, weakness in some large corporate accounts and moves like waiver of farm loans. On the same time IT stocks may come under pressure as Industry body Nasscom has projected that India's IT industry is expected to grow at the slowest pace in nearly a decade as clients defer spending in the face of geopolitical uncertainties. Software export growth in financial year 2017-18 is projected at 7-8 per cent in constant currency terms, down from 8.6 per cent last year.
Other technical observations
Low made friday was 9608 so even though bulls were not able to break the gann angle but they held on to support of 9610 in today’s fall and closed at 9633, Now bulls need a close above 9650 for a quick move towards 9720/9770. Bearish below 9610 for a move towards 9565/9520. Nifty made high of 9698 today unable to make a new life high above 9709 and made low of 9630, so bulls protected 9610 and bears protected 9720 hence trading in neutral zone with high volatility experience during the day.Today is 3 day where we made the failed attempt to close above gannangles, bulls should not delay much else bears will become active and can push nifty lower towards 9500/9400 odd levels. Now bulls need a close above 9650 for a quick move towards 9720/9770. Bearish below 9610 for a move towards 9565/9520.
Fresh farm loan waiver by the Karnataka government, escalating NPA issues and problems faced by the IT industry on the H1B visa front are among the multiple headwinds that have dragged Nifty over 100 points in the past two days.
On the other hand, banking stocks were in action after RBI announced plan to resolve troubled assets of 12 large borrowers and has also asked banks to resolve 55 high value cases of bad loans within six months. For the week, BSE Sensex and Nifty ended with marginal losses.
The IPO market is seeing very healthy signs with the IPO of CDSL receiving an overwhelming response as it got oversubscribed 169 times.