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Market Commentary 15 July 2019
Benchmarks to make a cautious start amid weak IIP, CPI data


Volatility hit over Indian equity benchmarks on Friday, with both larger peers, the Sensex and the Nifty ending lower by losses of 86 and 30 points, respectively. The markets made a cautious start of the day, after former finance minister P Chidambaram said that the Union Budget 2019-20 does not chalk out a clear roadmap to take India on the path of high economic growth and lacks bold steps and structural reforms. The street also remained concerned with US Commerce Secretary Wilbur Ross' statement that India must recognize that its protectionist policies and tariff rules are hurting its companies and are a big impediment to attracting foreign direct investment. The markets staged recovery in the second half of the session, supported with Finance Minister Nirmala Sitharaman's statement that the big picture presented in the Budget is backed with a plan to increase investment without compromising on the fiscal consolidation roadmap. Some relief also came with a report stating that as rainfall in the first 11 days of this month was 24% more than normal, the overall season's rain deficit came down to 12%, from 33% witnessed in June. But, key indices failed to hold gains and slipped into red terrain, as traders got cautious ahead of release of index of industrial production (IIP) for May and consumer price index-based inflation for June. Finally, the BSE Sensex fell 86.88 points or 0.22% to 38,736.23, while the CNX Nifty was down by 30.40 points or 0.26% to 11,552.50.


The US markets ended higher on Friday on renewed optimism about the Federal Reserve lowering interest rates as soon as its next meeting later this month. Congressional testimony from Fed Chairman Jerome Powell indicating crosscurrents, such as trade tensions and concerns about global growth, have continued to weigh on the US economic outlook helped spark the resurgence in optimism about a rate cut. Powell's remarks triggered an upward trend on markets that lifted the Dow above the 27,000 level for the first time ever. Though, trading activity was somewhat subdued as traders brace for the unofficial start of earnings season next week. On the economic front, the Labor Department released a report showing US producer prices unexpectedly edged higher in the month of June. The Labor Department said its producer price index for final demand inched up by 0.1 percent in June, matching the uptick seen in May. Street had expected producer prices to come in unchanged. The modest increase in producer prices came as a steep drop in energy prices was more than offset by continued service price growth. The report said energy prices plunged by 3.1 percent in June after tumbling by 1.0 percent in the previous month, with gas prices plummeting by 5.0 percent. Excluding food and energy prices, however, core producer prices climbed by 0.3 percent in June after rising by 0.2 percent in May. Core prices had been expected to show another 0.2 percent increase. The bigger than expected increase in core prices came as service prices rose by 0.4 percent in June after climbing by 0.3 percent in May. Dow Jones Industrial Average surged 243.95 points or 0.90 percent to 27332.03, Nasdaq rose 48.10 points or 0.59 percent to 8244.14 and S&P 500 was up by 13.86 points or 0.46 percent to 3013.77.


Crude oil futures ended slightly higher on Friday, after Gulf of Mexico storm expected to cause only a brief reduction in the region's oil and natural-gas production. Meanwhile, the International Energy Agency (EIA) has said global demand for the Organization of the Petroleum Exporting Countries (OPEC) oil looks likely to fall to its lowest in over 16 years as the US's production share rises. The IEA said demand from OPEC in the first quarter of 2020 will fall to 28 million barrels a day. Oil's overall gains for the week have been fueled in part by falling US inventories which have come down over the past four weeks. The market has managed to climb even though investors pondered more signs that global supply will remain plentiful as the US competes with OPEC, and against the backdrop of a less-than-robust demand scenario. Benchmark crude oil futures for August tacked on a penny to settle at $60.21 a barrel on the New York Mercantile Exchange. September Brent gained 20 cents or 0.3 percent to settle at $66.72 a barrel on London's Intercontinental Exchange.


Indian rupee ended weaker against the American currency on Friday, due to fresh dollar demand from banks and importers. Investors remain concerned ahead of key macro data - index of industrial production (IIP) for May and consumer price index-based inflation for June scheduled to be released later today. Sentiments also remained dampened with former finance minister P Chidambaram's statement that the Union Budget 2019-20 does not chalk out a clear roadmap to take India on the path of high economic growth and lacks bold steps and structural reforms. On the global front, dollar edged lower for a third consecutive day on Friday as stronger-than-expected U.S. inflation data failed to shake convictions that the Federal Reserve will start cutting interest rates at a policy meeting later this month. Finally, the rupee ended at 68.69, 24 paise weaker from its previous close of 68.44 on Thursday.


The FIIs as per Friday's data were net sellers in equity segment, while they were net buyers in debt segment. In equity segment, the gross buying was of Rs 3343.64 crore against gross selling of Rs 3520.45 crore, while in the debt segment, the gross purchase was of Rs 2284.18 crore with gross sales of Rs 1683.22 crore. Besides, in the hybrid segment, the gross buying was of Rs 1.18 crore against gross selling of Rs 7.59 crore.


The US markets ended higher on Friday on optimism the Federal Reserve will soon cut its benchmark interest rate. Asian markets trading mixed on Monday as investors await the release of Chinese gross domestic product data for the second quarter. Indian markets wiped out early gains and ended lower in the volatile session on Friday mainly due to late hour sell-off led by declines in IT firm Wipro and Oil and Natural Gas Corporation. Today, the markets are likely to make a cautious start of new week amid weak macro-economic data coupled with mixed global cues. As per Central Statistics Office (CSO) data, India's Index of Industrial Production (IIP) growth slipped to 3.1 per cent in May mainly on account of subdued performance of mining and manufacturing sector. The IIP had expanded by 3.8 per cent in May 2018. Besides, India's retail inflation hit a eight-month high in June on higher food prices, but stayed below the central bank's target, potentially giving it room for a further interest rate easing to boost slowing growth. Moreover, investors will be eyeing India's Wholesale price inflation and balance of trade data for June will be out later in the day. There will be some cautiousness with the Ministry of Agriculture & Farmers' Welfare's statement that farmers have planted 41.3 million hectares with summer crops, down 8.6 per cent year on year, though the gap in sowing narrowed from the previous week as monsoon rains picked up. Besides, the US and Indian trade negotiators ended talks on Friday without making major progress on a range of disputes over tariffs and other protectionist measures imposed by both sides that are straining bilateral ties. However, some support may come later in the day with report that foreign investors have remained net buyers in the Indian capital markets this month so far, even as the equity segment saw robust outflows post the Budget. There will be some buzz in the non-banking financial companies (NBFCs) stocks with report that in a bid to deal with stress in the NBFC sector, guidelines will be issued soon for State-owned banks to take over pooled assets of NBFCs. There will be some reaction in the telecom socks with report that the telecom regulator is not in a position to modify its previously recommended penalty on Vodafone India and Idea Cellular (now merged) and Bharti Airtel as it is bound by the provisions of TRAI Act. There will be some important earnings announcements too to keep the markets buzzing.


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