News U Can Use
December 21, 2018
The Week that was…
17
th
December to 21
st
December
2
Indian Economy
• The finance minister announced that the government will inject Rs. 83,000 crore in public
sector banks in the next few months of FY19. According to the media reports, this is
expected to help the banks come out of the Reserve Bank of India's Prompt Corrective
Action (PCA) framework. Additionally, the government has proposed additional capital
injection of Rs. 41,000 crore in state-owned banks through issue of government securities.
This is expected to enhance the total recapitalisation in the from Rs. 65,000 crore to Rs.
1.06 lakh crore in FY19.
• A major global credit rating agency opined that the recent resignation of the Reserve Bank
of India (RBI) governor was credit negative for the Indian economy. The credit rating
agency is of the view that continued intense external pressure from the Indian government
on the central bank could adversely affect the long-term financial stability of the country.
The rating firm advocated for RBI’s Prompt Corrective Action (PCA) and added that was
imperative for stressed banks in which the government has sought relaxation. It worries
that the involvement of the government with RBI may undermine the improvements in the
banking sector.
• Niti Aayog inaugurated a strategy document which aims to increase growth to 8% and
push the country towards a $5-trillion economy by 2030. The ‘Strategy for New India @ 75’
document was released by the finance minister. It was prepared after consultations with
over 800 stakeholders from within the government at the central, state and district levels.
3
Indian Equity Market
4
Domestic Equity Market Indices
Indices 21-Dec-18 1 Week Return YTD Return
S&P BSE Sensex 35742.07 -0.61% 4.95%
Nifty 50 10754 -0.48% 2.12%
S&P BSE Mid-Cap 15253 0.40% -14.42%
S&P BSE Small-Cap 14633.62 0.91% -23.91%
Source: MFI Explorer
NSE Advance/Decline Ratio
Date Advances Declines
Advance/Decline Ratio
17-Dec-18 1023 759 1.35
18-Dec-18 998 780 1.28
19-Dec-18 1196 584 2.05
20-Dec-18 842 949 0.89
21-Dec-18 535 1248 0.43
Source: NSE
• Indian equity markets fell in the week
ended Dec 21, 2018, after witnessing
gains in the last week. Weak global
cues after the U.S. Federal Reserve
(Fed) raised interest rates for the fourth
time in 2018 took a toll on the investor
sentiment, though it came in line with
market expectations. However, the
market received some support as Fed
indicated more rate hikes ahead but at
a slower pace. Concerns over slowing
world growth and increased risk of a
partial government shutdown
dampened investor sentiment.
• Meanwhile, investors traded cautiously
ahead of the 2019 Lok Sabha elections
as they were concerned that the
government could announce populist
schemes ahead of the general
elections. However, Reserve Bank of
India’s (RBI) decision to inject more
liquidity into the system capped the
losses.
Ratios
S&P BSE
Sensex
Nifty 50
S&P BSE
Mid Cap
S&P BSE
Small Cap
P/E
23.49 26.02 32.82 -99.9
P/B
2.98 3.4 2.63 2.18
Dividend Yield
1.21 1.24 0.95 0.86
Source: BSE, NSE Value as on Dec
21, 2018
Indian Equity Market (contd.)
5
Sectoral Indices
Indices
Last Returns (in %)
Closing* 1-Wk 1-Mth
S&P BSE Auto
21006.03 0.59% 2.26%
S&P BSE Bankex
30023.63 0.07% 1.66%
S&P BSE CD
20413.65 -2.47% 0.86%
S&P BSE CG
18600.84 0.54% 1.05%
S&P BSE FMCG
11713.09 -0.52% 2.99%
S&P BSE HC
13763.77 0.15% -4.30%
S&P BSE IT
13893.80 -5.25% 3.25%
S&P BSE Metal
11831.79 1.70% -3.47%
S&P BSE Oil & Gas
13654.76 1.81% 0.87%
Source: BSE Value as on December 21, 2018
• On the BSE sectoral front, indices closed on
a negative note. S&P BSE information
technology was the major loser that plunged
5.25% followed by S&P BSE Teck that fell
4.90%. Stocks of most IT companies fell
after rupee appreciated against the U.S.
dollar. S&P BSE Consumer Durables and
S&P BSE FMCG declined 2.47% and 0.52%,
respectively.
• However, S&P BSE Power was the major
gainer, up 2.63% followed by S&P BSE Oil &
Gas that grew 1.81%. S&P BSE Metal and
S&P BSE Realty grew 1.70% and 0.74%,
respectively.
Indian Derivatives Market Review
• Nifty Dec 2018 Futures were at 10,767.50 points, a premium of 13.50 points, above the
spot closing of 10,754.00. The total turnover on NSE’s Futures and Options segment for
the week stood at Rs. 38.78 lakh crore as against Rs. 44.79 lakh crore for the week to Dec
14.
• The Put-Call ratio stood at 0.93 compared with the previous week’s close of 0.97.
• The Nifty Put-Call ratio stood at 1.28 against the previous week’s close of 1.53.
Domestic Debt Market
6
Debt Indicators
(%)
Current
Value
1-Wk
Ago
1-Mth
Ago
6-Mth
Ago
Call Rate
6.45 6.41 6.43 6.24
91 Day T-Bill
6.63 6.68 6.83 6.42
7.80% 2021, (5 Yr GOI)
7.01 7.22 7.42 7.60
7.17% 2028, (10 Yr GOI)
7.28 7.44 7.79 7.77
Source: Thomson Reuters Eikon
Value as on Dec 21, 2018
• Bond yields fell as RBI increased the
quantum of the planned open market
purchase of government bonds for
Dec 2018 by Rs. 10,000 crore.
Optimism amongst investors owing to
strength in domestic currency and fall
in crude oil prices as a result of
oversupply concerns added to the
gains. However, profit booking
capped the gains.
• Meanwhile, the U.S. Federal Reserve
increased interest rates for the fourth
time in 2018 but indicated fewer rate
hikes for 2019.
• Yield on the 10-year benchmark
paper (7.17% GS 2028) fell 16 bps to
close at 7.28% from the last week’s
close at 7.44%, after trading in a
range of 7.38% to 7.70%.
7.12
7.27
7.41
7.56
17-Dec 18-Dec 19-Dec 20-Dec 21-Dec
Yield in %
10 -Yr Benchmark Bond ( % )
Source: CCIL
Domestic Debt Market (Spread Analysis)
7
Maturity
G-Sec Yield
(%)
Corporate Yield
(%)
Spread
bps
1 Year 6.99 8.50 151
3 Year 7.19 8.41 122
5 Year 7.32 8.22 90
10 Year 7.41 8.20 80
Source: Thomson Reuters Eikon
Value as on Dec 21, 2018
• Yields on gilt securities fell across the
maturities in the range of 6 bps to 18 bps
barring 2-year paper that increased 1
bps.
• Corporate bond yields fell across the
maturities in the range of 5 bps to 15 bps
barring 1-year paper that increased 2
bps.
• Spread between AAA corporate bond and
gilt expanded across the maturities in the
range of 4 bps to 14 bps barring 6- and
15-year papers that contracted 1 bps and
2 bps, respectively.
-20
-15
-10
-5
0
6.13
6.82
7.50
8.19
3 Mths 6 Mths 1 Yr 5 Yrs 10 Yrs 20 Yrs 30 Yrs
India Yield Curve Shift (%) (W-o-W)
Change in bps 21-Dec-18 14-Dec-18
Yield in %
Change in bps
Source: Thomson Reuters Eikon
Regulatory Updates in India
8
• The Securities and Exchange Board of India (SEBI) chief urged investment bankers to set
prices of initial public offerings (IPO) at reasonable levels to help strengthen the primary
market. SEBI chief expressed concerns regarding the fact that there were not many IPOs in
2018 and added that the capital market regulator is in talks with other regulators like the
Reserve Bank of India for overseas listing of companies. On a separate note, the SEBI
chief added that the capital market regulator has issued show-cause notices to three credit
rating agencies in the IL&FS case.
• SEBI issued new regulations to limit total expenses for investment in funds at 2.25%,
effective from Apr 1, 2019. SEBI has done this to rationalise the total expense ratio (TER),
which mutual funds collect from investors every year to manage their money. SEBI had
cleared a proposal in this regard in Sep 2018. The regulator has capped the maximum TER
for closed-ended equity schemes at 1.25%, and other than equity schemes at 1%. The
maximum TER for open-ended equity schemes has been set at 2.25%, and 2% for other
open-ended schemes.
• SEBI is planning a sandbox policy to support technology developments in financial markets.
With the Sandbox policy, the companies will be permitted to test products in a closed
environment, a geography or among a set of users, before they can roll out commercially.
Regulatory Updates in India (contd..)
• SEBI announced to issue a directive on terms and conditions for mutual funds to separate
their distressed debt assets. This is known as 'side pocketing'. SEBI has agreed in principle
to the proposal which was put forward by the mutual funds industry. Under side pocketing,
distressed, illiquid and hard-to-value assets are separated from other more liquid assets in
a portfolio. It prevents the distressed assets from eating into the returns generated from
more liquid and better-performing assets.
• The Reserve Bank of India has decided to increase the amount of liquidity infusion by Rs.
10,000 crore to Rs. 50,000 crore for Dec 2018 after a review of the liquidity condition. RBI
had earlier announced infusion of Rs. 40,000 crore through the purchase of government
securities under Open Market Operations (OMOs) for Dec 2018. RBI has already injected
Rs. 20,000 crore via two OMO purchase auctions.
9
Global News/Economy
• The U.S. Federal Reserve said that its Federal Open Market Committee has decided to raise
the target range for the federal funds rate by 25 bps to 2.25% - 2.50%. The central bank has
also indicated continued strength in labour market and rise in economic activity at a strong
rate. According to the Fed, overall inflation and core inflation also remained near the said
target of 2%, with indicators of longer-term inflation expectations also little changed. The Fed
also indicated of slowing down the interest rate hikes planned for 2019.
• According to a report from the Commerce Department, U.S. real Gross Domestic Product
(GDP) surged 3.4% in the third quarter of 2018 as against the previous expectation of
growth of 3.5%. The slightly slower than expected GDP growth reflects downward revisions
to consumer spending and exports.
• The Bank of England maintained its key interest rate at 0.75% and kept asset purchase
targets unchanged, in line with markets expectations. The stock of corporate bond
purchases was retained at GBP 10 billion and that of government bond purchases at GBP
435 billion. According to the bank, uncertainties due to Brexit as intensified which is weighing
on U.K. financial markets and on the near-term growth outlook.
• The Bank of Japan left its ultra-loose monetary policy unchanged at -0.1%. The bank has
pledged to maintain the current extremely low interest rates for an extended period amid
uncertain economic outlook and prices including the impact of the consumption tax hike
scheduled for Oct 2019. The central bank will conduct purchases of Japanese government
bonds in a flexible manner so that the outstanding amount increases at an annual pace of
about JPY 80 trillion.
10
Global Equity Markets
11
Global Indices
Indices
21-Dec-18
1-Week
Return
YTD
Return
Dow Jones
22445.37 -6.87% -9.20%
Nasdaq 100
6046.557 -8.32% -5.47%
FTSE 100
6721.17 -1.81% -12.57%
DAX Index
10633.82 -2.13% -17.68%
Nikkei Average
20166.19 -5.65% -11.42%
Straits Times
3046.04 -1.01% -10.49%
Source: Thomson Reuters Eikon
Value as on Dec 21, 2018
U.S.
• U.S. markets slumped amid heavy
selling pressure triggered by a host of
negative catalysts. Markets took a hit
after the U.S. Fed indicated plans to
continue to raise interest rates despite
signs of slowing economic growth. The
key indices witnessed a sharp pulldown
following fears of an extended
government shutdown.
Europe
• European markets followed Wall Street to end the week in the red. Market sentiments took
a hit after the U.S. central bank raised interest rates by a quarter point, as widely
expected, and indicated it still expects to hike rates twice in the first half of 2019.
Meanwhile, investors remained cautious as the Brexit uncertainties have intensified
considerably and are weighing on U.K. financial markets and on the near-term growth
outlook.
Asia
• Asian markets joined global sell off as growing worries over the prospects for the world
economy prompted investors to offload equities and seek safe-haven assets. Meanwhile,
the U.S. Fed’s commitment to tightening monetary policy despite rising risks to growth
kept investors wary.
Global Debt (U.S.)
12
• Yields on the 10-year U.S. Treasury
bonds plummeted 10 bps to close at
2.79% from the previous close of
2.89%.
• U.S. Treasury prices rose initially during
the week on concerns that the U.S.
Federal Reserve might increase interest
rates in its monetary policy review which
may end up harming the growth
prospects of the U.S. economy. Worries
about slowing global growth, volatility
across global financial markets and
possibility of a slowing U.S. economy
also improved the safe haven appeal of
U.S. Treasuries.
• U.S. Treasury prices rose further on
worries of political uncertainty in U.S.
after the U.S. President threatened a
“very long” government shutdown and
disagreed to sign a short-term spending
bill due to a lack of funding for his
controversial border wall.
2.73
2.79
2.85
2.91
17-Dec 18-Dec 19-Dec 20-Dec 21-Dec
US 10-Year Treasury Yield Movement
Source: Thomson Reuters Eikon
Commodities Market
13
Performance of various commodities
Commodities
Last Closing* 1-Week Ago
Brent Crude($/Barrel) 51.87 58.50
Gold ($/Oz) 1255.92 1238.12
Gold (Rs/10 gm) 31114 31374
Silver ($/Oz) 14.60 14.57
Silver (Rs/Kg) 36635 37375
Eikon *Value as on Dec 21, 2018
Gold
• Gold prices inched up after investors
anticipated that U.S. Federal Reserve
(Fed) might increase interest rates twice
in 2019 instead of previous expectations
for three. Besides, increasing worries on
the global economic slowdown
supported the bullion’s safe-haven
appeal.
Brent Crude
• Brent crude prices touched more than 1-
year low on concerns over global
economic slowdown, which threatened
the demand outlook of the commodity.
In addition, oversupply worries have
been intensifying with Russia registering
record high output of 11.42 million
barrels a day.
Baltic Dry Index
• The Baltic Dry Index fell 5.92% on the
back of lower capesize and panamax
activities.
8.00
8.50
9.00
9.50
10.00
10.50
21-Nov-18 1-Dec-18 11-Dec-18 21-Dec-18
Global Commodity Movement
Gold Spot ($/Oz) Silver Spot ($/Oz) Brent ($/bbl)
Global Commodity Prices
Rebased to 10
Source: Thomson Reuters Eikon
-11.33%
1.44%
0.23%
Currencies Markets
14
Movement of Rupee vs Other Currencies
Currency Last Closing* 1-Wk Ago
US Dollar
70.04 71.74
Pound Sterling
88.70 90.58
EURO
80.21 81.46
100 JPY
62.87 63.20
Source: RBI Figures in INR , *Value as on Dec 21, 2018
Rupee
• The Indian rupee strengthened against
the U.S. dollar following plunge in crude
oil prices and after India’s trade deficit
narrowed in Nov 2018.
Euro
• The euro strengthened against the U.S.
dollar after the U.S. Fed signalled fewer
interest rate hikes over the next two
years and expressed caution about the
U.S. economic outlook.
Pound
• The pound strengthened against the
greenback following more than expected
rise in U.K. retail sales data in Nov 2018.
Yen
• The yen strengthened against the
greenback after the U.S. indicated to
slow down interest rate hikes over the
next two years and expressed caution
about the U.S. economic outlook.
-2.37%
-2.07%
-1.53%
-0.52%
9.60
9.80
10.00
10.20
21-Nov-18 1-Dec-18 11-Dec-18 21-Dec-18
USD GBP Euro JPY
Source: RBI
Currency Prices ( in terms of INR)
Rebased to 10
Currency Movement
15
The Week that was…
17
th
December to 21
st
December
The Week that was (Dec 17 – Dec 21)
16
Date Events Present Value Previous Value
Monday,
December 17, 2018
• U.K. Rightmove House Prices (YoY) (Dec) 0.7% -0.2%
• Eurozone Consumer Price Index (YoY) (Nov F) 1.9% 2.2%
• U.S. NAHB Housing Market Index (Dec) 56 60
Tuesday,
December 18, 2018
• Germany IFO Business Climate (Dec) 101 102
• U.S. Housing Starts (MoM) (Nov) 3.2% 0.0%
• Japan Trade Balance (Nov) -¥737.3b -¥450.1b
Wednesday,
December 19, 2018
• U.S. FOMC Rate Decision 2.25% 2.25%
• U.K. Consumer Price Index (YoY) (Nov) 2.3% 2.4%
• U.K. House Price Index (YoY) (Oct) 2.7% 3.5%
• U.S. Existing Home Sales (MoM) (Nov) 1.9% 1.4%
• U.S. MBA Mortgage Applications (Dec 14) -5.8% 1.6%
Thursday,
December 20, 2018
• Bank of Japan Rate Decision -0.1% -0.1%
• Bank of England Rate Decision 0.75% 0.75%
• Japan National Consumer Price Index (YoY) (Nov) 0.8% 1.4%
Friday,
December 21, 2018
• U.S. Gross Domestic Product Annualized (QoQ) (3Q T) 3.4% 3.5%
• U.S. Durable Goods Orders (Nov P) 0.8% -4.3%
• U.S. Personal Consumption Expenditure Core (YoY) (Nov) 1.9% 1.8%
• U.K. GfK Consumer Confidence (Dec) -14 -13
• U.K. Gross Domestic Product (YoY) (3Q F) 1.5% 1.5%
17
The Week Ahead
24
th
December to 28
th
December
18
The Week Ahead
Day Event
Monday,
December 24, 2018
• Eurozone German Import Price Index (YoY) (Nov)
• Japan Corporate Service Price (YoY) (Nov)
• U.S. Chicago Fed Nat Activity Index (Nov)
Tuesday,
December 25, 2018
• Japan Leading Index CI (Oct F)
Wednesday,
December 26, 2018
• U.S. S&P/Case-Shiller US Home Price Index (YoY) (Oct)
Thursday,
December 27, 2018
• Eurozone German Retail Sales (YoY) (Nov)
• Japan Housing Starts (YoY) (Nov)
• U.S. Consumer Confidence Index (Dec)
• U.S. New Home Sales (MoM) (Nov)
• Japan Retail Trade (YoY) (Nov)
• Japan Industrial Production (YoY) (Nov P)
Friday,
December 28, 2018
• Eurozone German Consumer Price Index (YoY) (Dec P)
• U.S. Advance Goods Trade Balance (Nov)
• U.S. Wholesale Inventories (MoM) (Nov P)
• U.S. Pending Home Sales (YoY) (Nov)
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19
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