London/Mumbai/New York: The escalating war of words between Kim Jong Un and Donald Trump hit most Asian and global stock markets last week as investors fled risky assets and in favour of gold, the yen and the Swiss franc. The trend is expected to continue this week with North Korea’s Foreign Minister Ri Yong Ho and Trump sparring at the UN General Assembly over the weekend, in addition to rising tensions amid claims of yet another N-bomb test by North Korea and US airplanes breaching North Korean airspace.
According to Indian market observers, other major factors that could influence Indian investors include expectations of an economic stimulus package, along with derivatives expiry and movement of foreign funds and the government’s plans to recapitalise public sector banks. A further fall is bound to unnerve new investors and we could see the fall gathering momentum. Though fresh liquidity flows continue, the pace could slow on geopolitical and economic concerns.
“Markets’ sentiment next week would be dominated by what the government offers as stimulus to the economy, especially how it balances goals of pump-priming the economy yet keeping inflation and fiscal deficit under control. Global markets and the situation in North Korea will be closely watched,” said Devendra Nevgi, Chief Executive, Zyfin Advisors.
“Markets are likely to remain volatile in the next week ahead of the expiry of September derivative contracts as traders roll over positions to the October 2017 series,” DK Aggarwal, Chairman and Managing Director of SMC Investments and Advisors, said.
Talk of a Rs 400-500 billion stimulus is doing the rounds. Probable measures include sops to address exporters’ concerns, credit subvention for SMEs, funds for railways, capital for banks, measures to revive private investments, and funds for rural infrastructure and housing.
On the banking front, media reports said that Vijaya Bank and Dena Bank have expressed interest in a merger and are reportedly in the initial stages of discussing synergies. This is probably an early sign of the government’s ambitious plan for PSU bank consolidation taking shape. The government is pushing for consolidation among PSU banks for better efficiency and scale, and help them operate without the support of repeated capital infusion to bolster their balance sheets.
Telecom stocks were in focus after the Telecom Regulatory Authority of India’s (TRAI) move to cut interconnect usage charges by 57 per cent. This move is likely to be detrimental to incumbent operators such as Bharti Airtel and Idea Cellular, but beneficial to newcomer Reliance Jio. The government has clarified that the Goods and Services Tax (GST) refund for July 2017 is not Rs 650 billion as reported in the media, but could be limited to just about Rs 120 billion. This raises another fear among assessees that much of the remaining amount could go into litigation, thus squeezing liquidity for the business for a while longer.
In terms of investments, provisional figures from the stock exchanges showed that foreign institutional investors (FIIs) continued with their selling spree and off-loaded stocks worth Rs 5,448.66 crore during the week ended September 22. Figures from the National Securities Depository Ltd (NSDL) revealed that foreign portfolio investors (FPIs) divested equities worth Rs 3,911.21 crore during September 18-22.
However, domestic institutional investors (DII) bought scrips worth Rs 3,581.88 crore. “Though DIIs flows are very strong, but any earnings hiccups in coming quarters may limit these inflows,” said Vinod Nair, Head of Research, Geojit Financial Services.
“Going ahead, the markets will look for more cues from government on its stimulus programme and road map on fiscal deficit. Any sharp depreciation of INR will heighten the FIIs outflow,” Nair said. On a weekly basis, the Indian rupee had weakened by 72 paise to close on last Friday at 64.80 to a US dollar from its previous week’s close at 64.08.
In addition, investors will take further cues from macro-economic data points like the Index of ECI (eight core industries) for August 2017, external debt and the country’s fiscal deficit which will be released next week. As per technical analysis, on a downside, the Nifty is expected to further consolidate towards its next support level of 9,861 points. Last week, subdued macro-economic sentiment, coupled with rising tensions in the Korean peninsula dragged the two key indices -- the BSE Sensex and the NSE Nifty -- below their psychologically important levels of 32,000-points and 10,000-points, respectively.