20 May 2019

Investors, Brace Yourself for a Bumpy Ride – Weekly Equity Markets Analysis

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FIIs/FPIs have bought Indian equity shares worth Rs. 211 billion in April 2019 and sold shares worth Rs. 48 billion in May 2019 (till 17th May 2019).

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C S S Nikhil Bhargav

FIIs/FPIs have bought Indian equity shares worth Rs. 211 billion in April 2019 and sold shares worth Rs. 48 billion in May 2019 (till 17th May 2019).

The Nifty Index futures witnessed rise in open interest by 9.5% for the May series and rise in open interest by 90% for the June series. Implied volatility (IV) rose for call option and put option in the last week. Rise in IV for put option and call option shows unsteady support for Nifty at present levels. During last week, Nifty VIX rose by 5% showing weak market sentiment.

India’s seven-week-long elections, which began on 11th April 2019 has concluded with the final phase of polling on 19th May 2019. The results will be declared on 23rd May 2019. Sensex & Nifty have turned volatile due to uncertainties over current government to form majority in current Lok Sabha elections. However, if BJP continues to hold the majority in the elections then there wouldn’t be any knee-jerk reactions in the market and trends in Sensex & Nifty will start to factor in future macro-economic outlook. If BJP were to perform below expectations, the most likely alternative government will be one led by the main opposition party, the Congress. Till now markets have been factoring BJP led government, in a scenario of Congress led government formation (through coalition) or hung parliament would hurt investor sentiment and Sensex & Nifty will turn more volatile.

A return to coalition politics will mean less risk of knee-jerk policy decisions, such as demonetisation, which is a positive. However, uncertainty around the pace of decision-making will increase, owing to differences between the constituents of the new government, and there will be a greater risk of reform gridlock.

Global Economy

US industrial output dropped 0.5% from a month earlier in April 2019, defying market expectations of a flat reading and reversing a 0.2% advance in March. That was the biggest decline in industrial production since May last year, as manufacturing and utilities contracted while mining output rebounded firmly.

The Euro Area trade surplus narrowed to EUR 22.5 billion in March 2019 from EUR 27 billion in the same month of the previous year, beating market expectations of a EUR 20 billion surplus.

The annual inflation rate in the Euro Area rose to 1.7% in April 2019 from 1.4% in the previous month and in line with the preliminary estimate and market expectations.

Industrial production in the Euro Area fell 0.6% from a year earlier in March of 2019, after showing no growth in the previous month and compared with market expectations of a 0.8% decline.

Japan’s current account surplus narrowed to JPY 2.85 trillion in March 2019 from JPY 3.19 trillion in the same month a year earlier and below market expectations of a JPY 3.16 trillion.

Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6% on 16th May 2019, as widely expected. Policymakers said the decision is consistent with efforts to maintain the external stability of the Indonesian economy amid uncertainty over the increasing global financial market.

China’s industrial production increased by 5.4% (Y-o-Y) in April 2019, easing sharply from a 8.5% rise in March 2019.

Stocks of crude oil in the United States rose by 5.431 million barrels in the week ended 10th  May 2019, up from a 3.963 million decrease in the previous week and compared with market expectations of a 0.8 million fall.

The number of Americans filling for unemployment fell by 16,000 to 212,000 in the week ending 11th May 2019 from the previous week’s unrevised level of 228,000 while markets had expected a smaller drop to 220,000.

Global Market

Wall Street closed deeply in the red on Friday, as US trade tensions with China continued following the Trump administration’s decision to add Huawei Technologies to a trade blacklist, aimed at preventing the Chinese telecom giant to conduct business with US companies. During the week, Dow Jones fell by 0.7%, Nasdaq plummeted by 1.5% and S&P 500 declined by 0.80%.

Major European shares traded in the red on Friday morning, with auto shares among the worst performers led by BMW (-5.5%), on the back of escalated trade tensions between the US and China.

Stocks in the Asia-Pacific region closed mixed on Friday, amid fears that the trade dispute between the world’s two largest economies could escalate further following the Trump administration’s decision to add Huawei Technologies and its affiliates to the trade black list, in an attempt to prevent the Chinese telecom giant to conduct business with US companies. During the week, Kospi fell by 2.5%, Nikkei 225 declined by 0.50% and Shangai Composite slipped by 2%.

Crude oil prices rose for the third consecutive day on Thursday, on increasing concerns regarding a conflict escalation in the Middle East, following an attack on four oil tankers in the Gulf and Saudi Arabia’s announcement that two oil pumping stations were targeted in a drone attack. Crude oil prices rose by 2.25% during last week.

Indian Market

Sensex and Nifty gained by 1.25% and 1.13% respectively during last week.

India’s trade deficit widened to USD 15.33 billion in April 2019 from USD 13.72 billion in the same month last year and above market expectations of USD 13.91 billion. Imports were up 4.48% to USD 41.40 billion and exports rose at a softer 0.64% to USD 26.07 billion.

Vodafone Idea Ltd narrowed its consolidated net loss during the January-March quarter on the back of  lower operating costs due to realisation of  merger  synergies.  The company’s management said revenues benefited from removing customers from the network who recharge for less  than  Rs  35  a  month —due  to  which  the average   daily   revenue   during   the   quarter grew   by   2.3% sequentially, following 11 consecutive quarters of decline.

Tata Chemicals (TCL) and Tata Global Beverages (TGB) boards have approved a proposal to demerge the consumer business from TCL and transfer it to TGB through in a stock transaction. TCL shareholders will be issued 1.14 new shares of TGB for every share held in the former, resulting in 291 million shares increase in TGB’s share count. TGBL will become the pure consumer/FMCG business play under the Tata Group under a new name, Tata Consumer Products Limited, on completion of this transaction. to read our analysis on “Tata Group’s De Facto FMCG Giant”.

Despite slowing volume  growth  of  the  two-wheeler sector, Endurance Technologies, a    supplier    of    braking    systems, reported  double-digit  revenue  growth  for  FY19. Rising  content per  vehicle,  expansion  of  customer  base  over  the  years,  and adoption  of  new  technologies  such  as  anti-braking  systems (ABS) were the major growth drivers.

Sectoral Indices Trends:

The sectoral indices closed mostly in negative territory during last week. The S&P BSE PSU, Auto and IT indices had declined by 0.15%, 0.12% and 0.60% respectively.  Oil & Gas and Bankex indices gained by 0.58% and 1.52% during last week.

Bajaj Finance Witness rise in turnover in Stock Derivatives

Bajaj Finance has witnessed rise in open interest in the stock future segment in the last week. Share price of Bajaj Finance surged by 13% during last week. Bajaj Finance reported 50% (Y-o-Y) growth in consumer loans while loans to small businesses rose by 38% (Y-o-Y). Bajaj Finance’s asset liability position is comfortable and nearly 13% of its borrowings are from retail deposits. Assets under Management (AUM) as of Q4FY19 rose 41% to Rs 1158 billion. The company’s gross non-performing loans higher 13 basis points to 1.54% from 1.41%, while net NPA rose 20 basis points to 0.63%.

Foreign Institutional Investors (FIIs) Derivative Statistics have shown rise in the open interest across Stock Options, Index futures, Index options and Stock futures on a week on week basis.



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