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Asian mkts were off to a muted start for the qtr in a holiday affected wk. Volumes are thin with Labor Day holiday in Australia, HK and Chinese mkts shut through Oct 7th. Earlier last Fri, US mkts ended mostly unchanged to cap the best qtly advance in 5Y. US and Canada have managed to reach deal on NAFTA after more than a year of tough negotiations. This shall provide some relief for global equities. Crude rose 0.3%. Japan to Europe wl announce their mfg PMI for Sept. Japan’s consumer confidence for Sept is also due tom. All these wl dictate mkt sentiment across the globe.
Last week was one of the most volatile sessions in lcl mkt. Fri saw Nifty gyrate wildly in both directions. Despite a 80 pt recovery fm the low of the day, Nifty ended with a net loss of 212 pts for the wk(1.9%) – 5th in a row. It was worst Nifty performance in last 30M. The benchmark was dn 750 pts for the month or 6.40% amid concerns over liquidity crunch, suspicion over corporate governance issues, a steady decline in INR, spike in crude , a fresh rate hike by Fed and F&O rollover.  While Midcap index fell to lowest in 13M, small cap index traded @ lowest in 18M. Metal was one of the worst affected on rpts that China has eased anti-smog agenda, dropping blanket output curbs.
Collateral damage on account of ILFS doesn’t seem to have a parallel in the India history. DHFL lost 58% for the month while Yes Bank extended declines by 9% to close @ 183. Bears mauled Infibeam which crashed over 70% in single day on alleged governance issues. Just a few days after showing the door to founder CEO of Yes Bank Ltd, Rana Kapoor, RBI now has tightened the noose on Bandhan Bank. Central Bank froze the remuneration of Bandhan Bank CEO & permission to open branches stand withdrawn.
Last wk saw Govt has announce many steps including steps to boost currency and meet fiscal deficit target to calm mkt. Govt announced tariff hikes in 19 categories comprising of ~ 3% of import basket. It choose consumer goods over capital ones, banking on robust & resilient consumption growth over past year. Measures should at best help reduce imports by under $ 1b – which is quite small. In our view, the currency depreciation thus far is likely to play a bigger role in reducing the imports as compared to import duty hike. INR ended the wk @ Rs. 72.48 to a USD vs 72.59 the previous day. Forex reserves rose $ 1.3 bn to $ 401.8 bn as of Sept, 21. In a clear message to ILFS shareholders – LIC, Orix, RBI has find ways to stop further default in payments. Worried regulator IRDAI has written to insurance Cos to declare exposure to ILFS to prevent contagion risk. With the express intent to calm mkt nerves, govt is eyeing fiscal fitness with lower borrowings. It announced cut in gross borrowing by 70k Cr post mkt close on Fri. Thus, against the budgeted Rs. 6.05 Tn, borrowing for the year it wl be borrowing Rs. 5.35 Tn compared to Rs. 5.99 Tn last year sending a strong signal about its intent to meet the fiscal deficit target for the year. While the efficacy of these steps wl be known only over a period of time, mkt wl closely watch if govt announces fresh measures if any should the INR continue to slide.
As we step into new wk, we are headed into a truncated wk with Tues being trading holiday on account of Gandhi Jayanti. RBI’s monetary policy review(Oct3-5)will be key mkt driver along with some macro economic numbers and movement in the INR and crude prices. Mkt may remain tentative with a technical pull back. Today, auto dispatch nos for Sept  would be on investor radar. Sept number may be a bit soft, but Oct, Nov numbers should show improvement on festive sales. Festive season hasn’t started on xpctd lines in 2018 as Kerala floods washed off Onam festivities and lots of floods from other parts of the country has dampened the cheer. 2M of festive sales including Ganesh Chartuthi, Navratra, Diwali contribute 30% of the annual sales. As per media rpts, 4M of Aug-Nov is expected to see 26 new launches and facelift. Result season kicks off later later wk. Stocks wl swing to the beats of the earnings outcome. Investors would do well to stick to quality mid and small caps only.
Quote of the Day : “Focus on micros and what you are paying, not macro” – Prashant Jain, HDFC AMC
Focus of the Day :
1.       India Mfg PMI for Aug( exp 71.7 vs 52.3 in July)
Key corporate developments/policy actions:
1.       RBI imposed curbs on Bandhan Bank for not cutting owner’s holding. Bank may look at acquisitions to meet the promoter shareholding norms.  – AVOID EXPOSURE
2.       Tata Group’s Indian Hotel retains iconic Taj Mansingh hotel in NMDC auction – AVOID
3.       ILFS to raise Rs. 150 bn , hike borrowing limit.
4.       Yes Bank’s debt instruments worth Rs. 213.71 bn placed under credit watch with developing implications by Care Rating – AVOID EXPOSURE
5.       Ministry of Corporate Affairs to inspect books of accounts of Vakrangee – AVOID
6.       Minda Industries completed acquisition of 41.67% stake in Toyoda Gosei Minda India – LT POSITIVE
Fund Flow:
FII: (-)Rs.17.0 bn DII : (+)Rs.32.56 bn
Stocks to focus :
Large Cap :  Britannia, Bajaj Finance, Bharat Financial, Edelweiss, HDFC Bank, Titan
Mid Cap :  Aegis Logistics, Abbott, Balkrishna Ind, Himadri Chemical, JSPL, Minda Ind, Meghmani Org, PSP Projects, Rain Ind, Sterlite Tech, Subros, VIP Ind

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