After five consecutive weeks of gain, the Indian equity markets ended in the red again. The downward trend this week has been attributed to the growing possibility that Federal Reserve may hike interest rates and concerns over the Greek economic woes. The domestic currency, too, has not done much to improve sentiments.
The 30-share benchmark index, S&P BSE Sensex closed the week ending on 29 May at 27,828.44 points (down 129.06 points or 0.46 percent from the last weekly closing level at 27,957.50 points). The NSE’s 50-share index, the CNX Nifty also closed marginally in the red at 8,433.65 points (down 25.3 points or 0.29 percent from the previous week’s closing level at 8,458.95 points). After a dragging week, on Friday – the last trading session of the week – the BSE Sensex registered a 322 point rise on expectations that the central bank may announce a rate cut very soon. The broader markets have, however, done better than the benchmark indices. The BSE Mid-Cap Index closed the week at 10,716 points (up about 96 points or 0.9 percent) while the BSE Small-Cap Index closed 11,280 points (Up 72 points or 0.6 percent).
Over the past few weeks, the equity markets of India have been rather volatile and insipid Q4 earnings failed to stimulate excitement. For some time now, market watchers have been suggesting well-researched long-term investments as opposed to short-term or intraday trading.
The domestic currency was trading at weak levels this week. The Indian rupee ended Fridays’ trading session marginally lower (by 2 paise) at 63.82 against the US Dollar. Despite the met office’s assurances that monsoons seem set to arrive by month end and bring adequate rainfall, Chief Economic Advisor Mr. Arvind Subramanian has promised that the government is ready to deal with any shortage of food grain and expects inflation to remain in check.
Economy in Revival Mode: Finance Minister
Data released by the Central Statistics Office (CSO) this week revealed that the Indian economy grew at 7.3 per cent in FY 2014-15, up from 6.9 per cent in FY 2013-14. Between January and March (2015), alone, the country recorded a growth of 7.5 per cent. In a statement, the CSO said, “Real GDP or GDP at constant (2011-12) prices for the year 2014-15 is now estimated at INR 106.44 lakh crore, showing a growth rate of 7.3 per cent over the New Series/First Revised Estimates of GDP for the year 2013-14 of INR 99.21 lakh crore”.
Following the release, the Indian Finance Minister Arun Jaitley said that it was becoming clear that the nation’s economy is now in recovery mode. India’s economy outpaced China’s in the final quarter of FY 2014-15, a feat that has been long anticipated as a milestone. “Manufacturing sector is a silver lining”, said Jaitley. India’s manufacturing sector registered a growth of 8.4 per cent in the last quarter of the fiscal year and a growth of 7.1 per cent for entire FY 2014-15.
Rebutting former Prime Minister Manmohan Singh’s comments on the state of the domestic economy, the finance minister said that an economy which is the fastest growing across the world can certainly not be considered ‘fragile’. According to him, the manufacturing and services sectors are buoyant and seem to hold out great potential. This looks good for the ‘Make in India’ programme launched by the government. Agriculture and exports from the country need a further boost. With support from these sectors Indian economy holds the ability to achieve a growth rate of 9 per cent and beyond said the minister.
Corporates Anticipate RBI Rate Cut
The declaration of a hearty economic growth rate and the Chief Economic Adviser’s announcement that the government holds a considerable stockpile of food grains – enough to prevent further inflation in case of poor monsoons this year – have led corporate India to expect the RBI to go ahead with a 25-50 basis point rate cut. The RBI is likely to hold its policy review on 2 June and any rate cut decision made by the central bank will be announced on this date. The RBI aims to bring down inflation to about 4 per cent in the next two years.
NSE Launches New Interest Rate Future Contract
On Friday, the National Stock Exchange launched a new Interest Rate Future contract based on an underlying 10-year government bond maturing in 2025. On the first day, the IRF contract saw trading worth INR 2273.36 crore on the BSE and the NSE together. The new IRF is based on 7.72 per cent bond and will mature on 25 May, 2025. Mr. Huzan Mistry, the NSE Chief of Business Development said, “The new 7.72 contract seems to have attracted good interest from the market, along with the existing 8.40 contract”. An IRF is a contract that promises to sell a security (in this case the government bond) at a specified rate on a future date.
Sun Pharma and M&M Post Losses
India’s largest selling drug manufacturer, Sun Pharmaceutical Industries Limited reported a net profit of INR 888 crore for the January to March quarter of FY 2014-15, well below market expectations. In the same quarter the previous year, the company reported a profit of INR 1,587 crore. Much of the decline has been attributed to the delays and roadblocks faced by the company in the Ranbaxy merger.
Utility vehicles maker Mahindra & Mahindra (M&M) also reported a decline in net profits from INR 897 crore in Q4 of FY 2013-14 to INR 551 crore in the same quarter FY 2014-15. The company has reported about 30 percent decline in sales of tractor and utility vehicles. Although the target price of M&M’s stocks was cut by 4% following the declaration of Q4 earnings, the investors were clearly not disappointed.