CEA Krishnamurthy Subramanian’s comments and the unlikeliness of an aggressive Fed rate cut going ahead dampened market sentiments in the week ended August 23, though the losses trimmed a bit on Friday on renewed hope ahead of the finance minister's press meet later in the day.
The BSE Sensex shed 1.74 percent and the Nifty50 lost 2 percent, continuing loss for the second consecutive week, dragged by selling across sectors except for defensives - IT (up 3 percent) and Pharma (up 1 percent).
The broader markets saw more losses than benchmarks as the Nifty Midcap index dipped 3 percent and Smallcap index dropped 4 percent.
For the coming week, it was expected that the market will consolidate but now with the announcement of relief measures and especially rollback of surcharge on FPIs by Finance Minister Nirmala Sitharaman, the market is expected to start the week on a strong note and the Nifty could decisively trade above the psychological 11,000 levels on hope of revival of FII outflow but after that consolidation may continue for a while due to August series expiry and ongoing trade war tensions, experts feel.
"It is a phenomenal announcement from FM and if she plays her cards well, then there could be a definite boost to the economy and the party could continue going ahead. I expect 11,000 on the Nifty on Monday and bears could get slaughtered. But the follow-up rally will depend on economic growth and global factors like US-China trade war," Basant Maheshwari of BM Health Advisors told CNBC-TV18.
Vijay Chandok, MD & CEO, ICICI Securities also said that he is confident that the slew of measures revealed by FM would act as a major stimulus for the economy and provide an all-round sentiment boost.
The measures are expected to aid both - consumption and investments as borrowing cost will come down and with the withdrawal of surcharge on key investor categories like FPIs, inflows into the market are expected to improve, he added.
Here are 10 key things that will keep traders busy this week:
Economic Revival Measures and FPI Surcharge Rollback
The Finance Minister finally delivered what the market and industry wanted, to revive sentiment and boost the economy, though it will take some time to reflect in numbers and earnings.
The major announcement on the market front was the withdrawal of enhanced surcharge on the long term as well as short term gains made by FPIs and domestic investors, which is expected to stop FPI outflow to some extent.
PSU banks will also get a boost from the immediate recapitalisation of Rs 70,000 crore. Banks are also going to launch a repo rate or benchmark linked loan products, which will result in a low-interest rate for end consumers.
The clearing of GST refunds within 60 days (30 days for all pending ones) and cheaper working capital loans for the industry would also be a supporting factor that will bring flexibility to MSMEs in managing their working capital and resolve liquidity crisis in the economy. Similarly, an increase in allocation to Rs 30,000 crore (from Rs 20,000 crore) to NHB will help affordable housing and realty sector.
"The decision to pass on rate cuts to the borrowers will be a big relief and will help in reducing the cost of capital besides boosting credit growth & consumption. The symbolic measure of withdrawing imprisonment clause for CSR violations will help sentiment of industry & wealth creators. The best part is, FM is now open to act on Industry feedback and has promised to announce a few more stimulus measures in the coming weeks," Rajiv Singh, CEO, Karvy Stock Broking told Moneycontrol.
Measures for Auto Sector, and Stocks to be in Focus ahead of August sales
Revision of one-time registration fees deferred till June 2020 is expected to improve short term demand in the market and positive for 2Ws, 3Ws and PVs particularly.
Additional depreciation of 15 percent, taking the total to 30 percent on vehicles purchased up to March 2020 is expected to boost the commercial vehicle industry. There is a relaxation to the earlier stringent deadline of converting the internal combustion vehicles (ICVs) to electric vehicles (EVs) by 2023.
FM said the government is working on scrappage policy and will come up with something on it, which is positive for the commercial vehicle industry. BS-IV vehicles can be purchased till March 31, 2020, and to remain operational for the entire period of registration is also a positive move for the entire auto sector.
She is also meeting GST Council on Sunday, any decision on GST rate revision for automobiles will be taken positively. "This, if in favour of the industry will be a major boost to the sector, as the industry is vouching for a GST rate cut from 28 percent to 18 percent," Ashwin Patil, Senior Research Analyst (Auto Sector) at LKP Securities said.
Auto stocks are also expected to see some action in Friday's trade as August sales will be announced on Sunday, September 1 and will be closely watched after the weak performance for the last several months.
July auto sales plunged to the worst in two decades. Maruti Suzuki India posted the steepest fall of 36.7 percent in sales year-on-year, even as sales of other firms fell by 10-15 percent. Two-wheeler sales across firms fell 11-15 percent. Commercial vehicle sales were also very low, falling by about 40 percent.
China Imposes Fresh Tariffs on US Goods and Trump Tweets
World's second-largest economy China will retaliate with the imposition of new tariffs on another $75 billion worth of US goods which will be implemented in two batches (September 1 and December 15), which may cap some market gains and keep the benchmark indices in a consolidation mode.
China will impose additional tariffs of 5 percent or 10 percent on a total of 5,078 products originating from the United States. This is in response to the tariffs imposed by the US on $300 billion worth of Chinese goods.
After China's action, President Donald Trump said US companies should immediately start looking for an alternative to China.
"Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” Trump wrote on Twitter. “We don’t need China and, frankly, would be far better off without them,” as per a report by Reuters.
Rupee
The Indian rupee breached the 72-mark against US dollar for the first time this year on Friday on consistent FII outflow, an unlikely rate cut by Federal Reserve and global trade tensions.
The hope of rollback of FPI surcharge and rally in the equity market on Friday helped currency trim losses to 51 paise for the week and it closed at 71.66 a dollar.
Now, with the announcement of rollback of FPI surcharge and various measures to boost the economy, there could be some relief for the currency to some extent but overall experts expect the pressure may continue due to ongoing trade tensions, though stable crude oil prices may provide support.
The rupee already lost more than 4 percent in August so far and is set for the biggest monthly fall in six years.
"The Indian rupee has become Asia's worst-performing currency in August amidst pressure from China's Yuan, the ongoing trade war, and a massive withdrawal of funds by FPIs," said Abhishek Bansal, Chairman, Abans Group who expect the Indian rupee to remain under pressure and it may weaken further.
August F&O Expiry
The market could see some volatility as there is the expiry of August futures & options contracts on Thursday in the coming week.
Maximum Put open interest is at 10,700, which could act as near term support for Nifty, followed by 10,500 strikes while maximum Call open interest is at 11,000, which could be near term resistance for Nifty, followed by 11,100 strikes.
Put writing was seen at 10,600 followed by 10,700 strikes while Call writing was seen at 10,700 followed by 10,800 strike. Options data suggests the Nifty could be in the range of 10,650 to 11,000 levels in coming days.
"After witnessing a sharp sell-off, the Nifty reverted from lower levels in anticipation of some positive outcome. However, the writing at 11,000 Call strike suggests upsides are limited till August expiry," Amit Gupta of ICICI direct said.
"Volatility has consistently found resistance near 18 percent. Hence, the option writing strategies can be adopted in the current expiry week. Lowering volatility and time decay should come in favor of such strategies," he added.
Technical View: Nifty likely to reclaim 10900-11000 levels
The index rebounded to close above 10,800 level on Friday and formed a Piercing kind of pattern on daily charts, which is considered as a bullish reversal sign.
But the index closed sharply lower for a second consecutive week and formed a bearish candle on the weekly scale, but still holds crucial 10,700 levels. Hence on the back of strong measures by the FM, the Nifty could see some upside initially in the coming week but the 10,700 level could remain make or break, experts feel.
"Technically this is a make or break point for Nifty. If we are able to sustain the 10,700 area for coming week a possible overdue bounce back can be seen. There are technical indicators which are showing divergence and a possible pullback can be played from these levels. A close below 10,700 on weekly basis would trigger further short side momentum to 10,400-10,300," Mustafa Nadeem, CEO at Epic Research told Moneycontrol.
But he is still cautious that even if there is a pullback on government response, how much would it be sustainable as global markets remain volatile amid the trade war.
Macro Data
GDP growth rate for quarter-ended June 2019 will be announced on August 30.
Gross domestic product (GDP) grew 5.8 percent (slowest since 2014-15) in January-March 2019, confirming fears of a slowdown and real or inflation-adjusted GDP grew 6.8 percent in 2018-19, lower than previous year's 7.2 percent.
The data for infrastructure output and government budget value for July, deposit and bank loan growth for the fortnight ended August 16, and foreign exchange reserves for week ended August 23 will also be released on August 30.
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