Nifty has to close above 7,670 for the first sign of a bullish trend
We had mentioned in last week’s closing report that Nifty, Sensex are in no man’s land as we enter 2016 and that Nifty has to stay above 7,850 for the uptrend to continue. The major indices in the Indian stock markets suffered a sharp correction and went below 7850 on the first day itself, that is, Monday and continued to head lower in line with the global cues – plunge in Chinese stock markets and geo-political tensions. On Friday, there was a minor recovery with the indices improving by 0.33%-0.44% over Thursday’s close due to value buying by investors. The trends of the major indices in India during the course of the week’s trading are given in the table below:
European shares fell on Monday on the first trading day of 2016 after weak Chinese data rekindled global growth worries, while oil prices jumped and bond yields dropped on rising tensions in the Middle East, reports Reuters. Chinese manufacturing surveys showed that any hopes for a recovery in the sector were premature. Adding to the worries, China's central bank fixed the yuan at a 4-1/2 year low. Chinese shares fell sharply, prompting the stock exchange to halt trading. European stocks followed Asia's lead. Germany's DAX dropped 3.4%. Investors were wondering how much further the U.S. Federal Reserve would raise rates this year after its first rate hike in almost a decade last month.
Negative global cues, coupled with disappointing macro-data, subdued Indian equity markets on Tuesday. This led the Indian equity markets provisionally closing the day's trade in the red a day after it plunged to a new four-month low. Initially, the bellwether indices opened on a firm note in sync with their Asian peers. However, they soon receded on the back of negative international cues from the US, rising geo-political tensions in the Middle East and disappointing macro-data. Besides, investors were seen cautious regarding the upcoming macro-data on industrial output, retail inflation and the third-quarter earnings results which start from January 14. Nevertheless, some value buying and mildly positive Asian markets soothed investors' nerves.
Geo-political tensions, coupled with caution over upcoming macro-data and quarterly results, depressed Indian equity markets on Wednesday. Initially, the bellwether indices opened on a flat-to-negative range in the wake of two days of consecutive falls, disappointing domestic macro-data and global uncertainties. Nevertheless, both the indices soon pared their losses on the back of short-covering, value-buying and positive Asian markets' close.
Finance Minister Arun Jaitley's comments on Tuesday regarding further reforms in the infrastructure sector also buoyed sentiments. However, the benchmarks soon receded, as investors were spooked over the rising geo-political tensions in the Far East following North Korea's reported testing of a thermo-nuclear device. In addition, volatility was stoked by the upcoming US non-farm payroll figures scheduled for release on late Thursday India time, along with minutes of latest FOMC (Federal Open Market Committee) meeting. Both the events could provide indications on future US rate hikes. Besides, caution prevailed over the upcoming domestic macro-data on industrial output, retail inflation and the third-quarter earnings results which start coming in from 12th January.
The Indian cabinet on Wednesday approved setting up of a credit guarantee fund for loans of Micro Units Development & Refinance Agency Ltd or MUDRA Bank. The fund is expected to guarantee loans worth more than Rs1 lakh crore to micro and small units in the first instance, the government said. The cabinet meeting chaired by Prime Minister Narendra Modi also gave its nod to covert MUDRA Ltd to MUDRA Small Industries Development Bank of India (MUDRA SIDBI Bank), a wholly owned subsidiary of SIDBI.
Panic selling triggered by a plunge in Chinese markets, coupled with rising geo-political tensions and upcoming US macro-economic data, dented Indian equity markets on Thursday. This led to the S & P BSE Sensex receding close to its 52-week low on a closing basis. The bellwether indices opened on a negative note following a rout in the Asian markets which was triggered by accelerated devaluation of the Chinese yuan, disappointing domestic macro-data and global uncertainties. Commodity prices, too, plunged as the economy of the world's largest consumer namely China struggled. The benchmark Shanghai Composite Index declined 7% within just 29 minutes, which led to a halt in trading, as the circuit breaker mechanism was triggered. The Chinese markets' fall impacted other global bellwethers, including the Japanese and Australian indices, which reacted negatively.
A weak rupee and increase in selling activity by foreign portfolio investors (FPIs) also subdued sentiment on Thursday. According to data with stock exchanges, FPIs had divested Rs242.48 crore on Wednesday. Market observers pointed out that volumes continued to rise in the sell-off, affirming the weak sentiment. Geo-political tensions in the Middle East and North Korea testing a thermo-nuclear device on Wednesday eroded investors' confidence. Besides, caution prevailed over the upcoming domestic macro-data on industrial output, retail inflation and the third-quarter earnings results which start coming in from January 12. The markets seemed to have ignored the positives, especially the release of latest FOMC (Federal Open Market Committee) meeting minutes which indicated that the US Fed might delay another round of rate hike.
The S&P BSE market breadth favoured the bears on Thursday -- with 2,189 declines and 636 advances. Sector-wise, automobile, capital goods, banking, healthcare and oil and gas indices stocks came under selling pressure.
A minimum dividend of 30%, declaration of special dividend and issue of bonus shares were the new guidelines from the central government as the owner for central public sector enterprises (CPSE) on Thursday. The department of economic affairs under the union ministry of finance in its office memorandum on 5 January 2016, said as a majority owner of CPSEs, the central government has decided on the new dividend policy. According to the new policy, a CPSE would declare an annual dividend of 30% of profit after tax (PAT) or 30% percent of the central government's equity whichever is higher; declaration of special dividend as a return for its equity investments; and issue of bonus shares by companies having large cash reserves. According to the department, the companies would have to look at market borrowings for capital investments so as to leverage the favourable debt-equity ratio. The economic affairs department also said market borrowing for capex would enforce more professionalism in the CPSEs. The new dividend policy seeks to increase the dividend income for the central government from the earlier rates of 20% of PAT or 20% of equity whichever is higher.
Positive Asian indices, and hopes of political consensus over key economic legislations, buoyed Indian equity markets on Friday. This resulted in the S &P BSE Sensex ending the day's trade up 83 points, a day after it touched a new 52-week low. On Friday, the bellwether indices opened on a positive note in sync with their Asian peers. Asian markets gained after China decided to put quick-fixes to its falling markets such as the suspension of the circuit-breaker system which halted trading twice this week. The Chinese administration raised the guidance rate for the yuan and asked state-controlled funds to buy equities. The major indices closed marginally higher in the Indian stock markets over Thursday’s close. On Friday, the S&P BSE market breadth favoured the bulls -- with 1,945 advances and 814 declines.