Markets extend the rally despite weak macro data

Indian markets made a fabulous start of the new week and month, adding over a percent to their last two session’s gaining streak. The best part of the rally was that it came tailing the sanguine global cues despite slew of weak economic numbers. Markets looked in jubilant mood since morning as the rupee after some initial weakness once again started strengthening against the dollar, while there was buying in all the beaten down stocks that helped the markets firm up in the second part, it was the strong start of the European markets that gave further boost to the markets.

Earlier, the markets got a good start in green on getting supportive global cues from the Asian markets that were mostly trading higher on report that Chinese manufacturing expanded and euro region factory output maintained growth in August. Though, the Chinese market ended flat but most of the indices in the region ended higher. Later the European markets too made a jubilant start after the final reading on a euro-area manufacturing index came at 51.4, up from a flash reading of 51.3,confirming that the region’s manufacturing recovery has gathered pace.

Back home, the euphoric Indian markets got the support of strength in rupee, which after closing at 65.71/$ in last session, showed some upmove in early trade. Though, the rupee pared all its gains going forward, the equity markets not only managed to keep the momentum going but added pace in the second half with the support of FMCG, metals and oil & gas stocks. The Indian markets even overlooked the weak economic data of first quarter GDP numbers, which came at 4.4% much lower than street expectation and the fiscal deficit of the nation touching Rs 3.4 lakh crore or 62.8% of the budget estimate in first four months (April-July) only. There was some disappointment with the manufacturing activity slipping into contraction zone for the first time in more than four years in August. The HSBC Manufacturing Purchasing Managers’ Index (PMI) fell from 50.1 to 48.5 in August. However, the numbers looked to be on anticipated lines and factored in, so the markets continued heading towards north. In the dying hours the markets got an added support of the non-sectoral sugar gauge, which surged anywhere near 10-20% for the day on hopes that the demand will increase due to the the upcoming festive season. Oil & gas stocks, especially the PSU oil marketing companies too gained around 1-2% after they hiked petrol and diesel prices during the weekend. IT stocks lost some sheen with rupee appreciation, while Auto index bounced back after many of the companies including Maruti Suzuki, Bajaj Auto, TVS Motors and Ashok Leyland reported sales improvement sequentially. The Broader markets, mainly the midcap stocks bounced back and outperformed the benchmarks.

The market breadth remained in favour of advances, as there were 1,400 shares on the gaining side against 851 shares on the losing side, while 149 shares remained unchanged.

Finally, the BSE Sensex surged 266.41 points or 1.43% to settle at 18886.13, while the CNX Nifty climbed by 78.95 points or 1.44% to end at 5,550.75.

The BSE Sensex touched a high and a low of 18942.06 and 18678.93, respectively. The BSE Mid cap index was up by 1.42% and Small cap index was up by 1.01%.

The top gainers on the Sensex were, Tata Steel up by 5.54%, Maruti Suzuki up by 4.45%, RIL up by 3.78%, Hindalco Industries up by 3.77% and ITC up by 3.75%. On the flip side,  Mahindra & Mahindra down by 1.86%, Tata Power down by 1.78%, HDFC Bank was down by 0.78%, Infosys was down by 0.74% and Dr Reddys Lab was down by 0.67% were the top losers in the index. 

The top gainers on the BSE sectoral space were, Metal up by 3.16%, FMCG up by 3.10%, Realty up by 3.00%, Oil & Gas up by 2.55% and Consumer Durables up by 1.76%, while there was no loser on the sectoral space.

Meanwhile, the International Monetary Fund (IMF) said that India's large fiscal and current account deficits (CAD) have impacted market confidence. In the previous fiscal, India’s CAD widened to a record high of 4.8 percent of GDP, while, fiscal deficit stood at 4.89 percent of the country’s GDP.

IMF said that high and persistent inflation, sizable un-hedged corporate foreign borrowing and reliance on portfolio inflows are longstanding vulnerabilities that have now been elevated as global liquidity conditions tighten, and thus clearly affecting the investors’ confidence. Overseas investors have pulled out nearly $2.5 billion from the Indian capital markets in August. Meanwhile, in June, Foreign Institutional Investors (FIIs) had pulled out a record $ 7.5 billion from the Indian capital markets.

By adding further, IMF said that Indian economy is also battling with depreciating rupee, which has dropped over 23 percent since April and had recently touched a low of 68.80 to a dollar. The current economic situation of the country presents a challenge to the government, but also reflects an opportunity for it to continue with its policy efforts on a variety of fronts, it added. In the April to June quarter of current fiscal, the country’s economic growth slowed down to 4.4 percent, lowest in four years.

The CNX Nifty touched a high and low of 5,564.90 and 5,478.85 respectively. 

The top gainers on the Nifty were JP Associate up 9.82%, IndusInd Bank up by 7.36%, Tata Steel up by 6.09%, DLF up by 5.55% and Ranbaxy up by 5.16%. The key losers were Kotak Bank down by 4.90%, M&M down by 2.07%, Tata Power down by 1.85%, Hero MotoCorp down by 1.38% and ACC down by 1.27%.

The European markets were trading in green, France’s CAC 40 up by 1.74%, Germany’s DAX up by 1.66% and the United Kingdom’s FTSE 100 was up by 0.46%.

Most of the Asian markets concluded Monday’s trade in green after manufacturing data of China signaled an improvement in the world’s second-largest economy. Hong Kong shares logged best day in three weeks. Japan’s Nikkei average rose as real estate and construction stocks gained on hopes that Tokyo will win the race to host the 2020 Summer Olympics, while consumer finance shares climbed after a media report citing rising loan demand. The HSBC China Manufacturing Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, rose to a final reading of 50.1 in August from 47.7 in July, HSBC Holdings PLC stated. The HSBC China Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in more than 420 manufacturing companies. This follows a rise in the official manufacturing PMI, a competing index, to 51.0 in August. China’s official manufacturing Purchasing Managers Index rose to 51.0 in August compared with 50.3 in July, the China Federation of Logistics and Purchasing, which issues the data with the National Bureau of Statistics. A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below indicates contraction.

Indonesia’s annual inflation rate rose to 8.79% in August, the highest since January 2009, the statistics bureau stated. The core inflation which excludes volatile food prices and administered prices, climbed to 4.48% in August from 4.44% in July. In August, the inflation rate was pushed up by higher food and gold prices as well as imported inflation from the depreciating rupiah. Bank Indonesia has estimated that at year-end, inflation will be 9.0-9.8%. Besides, manufacturing activity contracted sharply in Indonesia in August and the workforce declined, according to HSBC Markit purchasing managers’ index (PMI), which fell to a 15-month low. Contraction in output, new orders and export orders pulled down the index for Southeast Asia’s biggest economy to 48.5 from 50.7 in July. This is the fourth straight month of deterioration in the PMI, and marks the lowest print since May 2012. Separately, Indonesia’s trade deficit widened sharply to $2.31 billion in July from $847 million in June due to rising imports, the Central Statistics Agency stated. The trade deficit is the highest on record since the government began including imports into free-trade zones in overall imports in 2008. The previous record deficit was $1.90 billion booked in October 2012.

South Korea’s manufacturing activity contracted for the third consecutive month in August, though at a slower pace than in July, indicating business conditions remain challenging amid an expected withdrawal of US monetary stimulus, data released by HSBC showed. The HSBC Purchasing Managers’ Index was at a seasonally adjusted 47.5 in August compared with 47.2 in July, reflecting a slightly less steep decline in output and new orders. Meanwhile, South Korea’s exports expanded at a faster pace in August than the previous month in a sign of economic recovery, the Ministry of Trade, Industry and Energy stated, beating market expectations. Exports in August gained 7.7% from a year earlier to $46.365 billion, following a 2.6% rise in July. Imports increased 0.8% on year to $41.449 billion in August, compared with a revised 3.2% gain in July.

The Hong Kong government’s expenditure for April-July amounted to $138.4 billion, with revenue of $111.3 billion, resulting in a deficit of $27.1 billion. The Financial Services & the Treasury Bureau stated that deficit was mainly because some major types of revenue, including salaries and profits taxes, were mostly received towards the end of a financial year. Fiscal reserves stood at $ 706.8 billion at the end of July.