It was the sixth successive day of correction in the indices. Nifty closed 44 basis points lower at 11,477 with consumer stocks bearing the brunt. The pressure on consumer stocks like Hindustan Unilever and Titan continued to weigh on the Nifty for the second day in succession. Metal stocks and some select counters like Yes Bank, Wipro and Tata Motors lent some support to the Nifty. Pharma stocks held up for the day. Among the sectoral indices, the telecom stocks were the worst hit with most names losing over 3-4% in trade. The rupee continued to spook the equity markets.
Donald Trump’s trade war may be really turning out to be counterproductive. Trade war has actually led to a rise in the US trade deficit. The outcome of the trade war is turning out to be exactly the opposite of what the US wanted. US Trade deficit for July came in 10% higher at $50.10 billion on weakening exports after China retaliated with counter tariffs. The US trade deficit with China also surged 10% to $36.8 billion. In fact, one of the biggest reasons of triggering the trade war was to reduce the huge trade defect that the US was running with China. Things appear to be playing the other way round.
Even as the GDP is buoyant, the services sector appears to be under pressure. Services PMI falls sharply in the month of August to 51.50. This comes immediately after the PMI Services touched a 21-month high of 54.20 in July. Both new orders and jobs created in the services sector narrowed in the month of August. The input cost for services is building up quite rapidly. A figure above 50 indicates sectoral expansion. While the services sector is still on an expansionary mode, it has surely shown a loss of momentum in the last month with a sharp fall in the PMI number.
The rupee appears to be tumbling faster than the most pessimistic estimates. Rupee closed at 71.76/$ and 10 year bond yields closed flat at 8.05%. The rupee continued to be under pressure after consistent dollar demand from importers and banks. There was some RBI support visible after the INR cracked to the 71.97/$ mark. Bond yields stayed flat above the 8% mark as weakening rupee raised fears in the market of another rate hike. It is now believed that the only respite that the RBI may offer against a plunging rupee is by aggressively hiking rates, since forex intervention is not feasible.
It may actually be bad news for crypto currencies like Bitcoins, which were counting on Bitcoin to give them a veneer of respectability. Goldman Sachs will be dropping its Bitcoin trading plans for the time being. When the price of Bitcoin had gotten closer to $20,000 last year, Goldman had announced plans to set up a dedicated trading desk. In fact, Goldman was one of the first major investment banks to plan a full-fledged trading desk for crypto currencies. However, the same has been shelved due to lack of regulatory clarity. Goldman was looking to clear Bitcoin transactions for some of its clients. Regulators have been intensifying their scrutiny of Initial coin offerings (ICOs) and crypto currency exchanges. Under these conditions, Goldman obviously does not want to take regulatory chances.
Even as CRISIL upgraded the ratings of Reliance Infra, ADAG group is all set to reduce debt by 60% post asset sales. Apart from selling its telecom assets to Reliance Jio, the group has also hived off Reliance Infra’s Mumbai power business to the Adani group. This will help to substantially reduce its debt of more than Rs.1 trillion, which currently entails an annual interest outflow of Rs.10,000 crore. In fact, the ADAG group had just escaped getting embroiled in forced NCLT sell-offs after it managed to strike deals with Reliance Jio and with the Adani Group for strategic sale of its key assets.
