The Indian stock markets staged a strong comeback on Friday as the benchmark indices recouped partially from the declines made earlier in the week. On the last day of the week, the surge in the domestic equity market was largely due to expectations of another rate cut by the RBI on the back of strong macro economic data.
Market participants said announcements of plans to revamp public sector banks also aided the gains on Friday. The BSE Sensex advanced 517.78 points, or 1.88%, while the Nifty went up 1.95% on Friday. However during the week, global factors, such as devaluations of yuan and weak commodity prices, pushed equity markets lower. During the week, the Sensex lost 169.08 points, or 0.59%, whereas the Nifty lost 46.05 points, or 0.54%.
“The encouraging July CPI inflation print not only reflected the favourable base effect, but also a weakening sequential momentum. We expect CPI inflation to undershoot RBI’s January CPI target considerably, implying the scope for a further 25-50-bps rate cut in FY16. We believe chances of a 25-bps rate cut on September 29 have increased significantly, with global volatility being the only potential risk,” said Madhavi Arora, economist, Kotak Institutional Equities.
PSB shares shot up on Friday, as the government unveiled its plans to revamp them. Union finance minister Arun Jaitley announced a seven-point reform agenda for PSBs, including infusing capital and setting up of a bank board bureau. Experts said the move was in right direction but not a big bang. Indian banks, especially PSBs, have been in a bad shape in the recent past. The asset quality of Indian banks has been constantly deteriorating. As per official data, stressed assets constitute 11.1% of total assets of Indian banks.
Emkay Global noted in a research report published in the third week of July that the current quarter would be weak for the banking sector as growth would be slower, with limited scope for margin expansion, and the likelihood of restructured loans defaulting could be high.
Stocks of realty companies surged. The BSE Realty rose 7.6% as shares of DLF advanced 18.28% during the session . However, BSE Realty was down 0.56% during the week.
The week was good for IT shares as the BSE IT index went up 3.89%. US investment banking firm Jefferies said in a research note that it expects IT industry revenue to pick up q-o-q due to seasonality and exchange tailwinds; however, y-o-y, the results will show a slowdown.
Pharma shares also fared well during the week as the BSE Healthcare was up 3.6%. Swiss investment banking firm Credit Suisse had said in an investor note that Indian pharma players benefiiting from a pick-up in the US Food and Drug Administration (FDA). The real benefit is yet to be realised as FDA has so far utilised only 55% of funds raised over last two years, it said.
However, shares of metal companies slumped during the week with BSE Metal losing nearly10%. The devaluation of yuan sparked fears it would lead to import dump from China.
Fears of the investors were not allayed despite the announcement made by finance ministry to hike import duties on flat steel by 2.5% to 12.5%.
Market reports have predicted a stressed quarter ahead for metal companies, especially for the steel sector. London-based HSBC equity research said in a note to investors that Ebitda of Indian steel companies fell 50% in the last quarter. It added that although Indian steel companies have invested over $12 billion in new capacity, imports have steadily risen.
Realty firms hit the roof on rate cut hopes
Shares of realty firms rallied on Friday as lower-than-expected retail inflation raised expectations of another rate cut by the Reserve Bank of India at the September review of the policy. As investors lapped up realty stocks, the BSE realty index climbed 7.6%, its biggest single-day gain in seven months. The gauge closed at 1,429.03 and reported the biggest gain among BSE sectoral indices. The benchmark Sensex added 517.78 points, or 1.9%, to close the session at 28,067.31. Consumer price inflation (CPI) fell to a nine-month low of 3.8% in July due to lower food prices and high base effect. The inflation rate stood at 5.4% in June. Although the central bank has already cut the policy rate by 75 bps in three tranches since January this year, expectations of further monetary easing have led to increased buying interest in companies that benefit from lower interest rates.
DLF, the largest real estate firm by market value, rallied the most with 18.3% gain adding R3,717 crore to the investor wealth. The current market cap of the company stands at R24,049 crore. On Thursday, DLF posted a 5% y-o-y decline in consolidated net profit at R121.55 crore for the quarter ended June due to higher finance costs and rise in operational expenses. While Mumbai based HDIL climbed 11.5%, other real estate firms, such as Anant Raj, Prestige Estates Projects, Indiabulls Real Estate, Unitech and Oberoi Realty , rallied anywhere between 3.5% and 6.3%. The combined traded volumes of HDIL on BSE and NSE jumped around four-fold to 2.5 crore shares. The volume of Unitech and Indiabulls Real Estate rose two fold to 10.14 crore and 2.3 crore, respectively. fe Bureau