The Nifty and Sensex did not show any fireworks as the Nifty ended 40 points up, above the 10,500 mark. The market was helped by short covering with pharma stocks and Infosys driving markets higher. Auto and consumer stocks were under pressure. The immediate worry could be the FII selling to the extent of more than $4 billion in the first 2 weeks of October. The rupee saw weakness creeping in after the price of Brent crude rose by over 1% in the light of the Khashoggi fiasco in Saudi Arabia. The rupee did breach the 74 mark during the day before RBI support at the 74/$ mark came in.
There has been consistent liquidity support for money markets from the central bank. RBI is likely to buy Rs.12,000 crore worth of bonds as part of OMO on October 17th. The RBI normally purchases securities under the OMO to infuse liquidity in the money markets. Currently, there is a liquidity deficit in the money market which is already putting pressures on money market rates. OMO purchases are one of the strategies of the RBI to infuse liquidity and ensure that the bond yields don’t shoot too high. Bond yields are currently well below 8% as liquidity concerns are addressed.
There was good news and bad news on the trade front. India’s trade deficit for September hits a 5-month low at $13.98 billion. The fall in the trade deficit from the highs of $18 billion in the last two months does look like a more benign number. But scratch the surface and there is a bigger problem for the Indian economy to contend with. Imports grew at a slower rate of around 10.5% but exports showed negative growth. The trade war appears to have certainly hit Indian trading volumes in a big way and that could be a big challenge for India’s export push.
Wholesale inflation showed the first signs of hardening. WPI inflation for September at 5.13% comes in slightly higher. Even as the CPI inflation remained within the 4% comfort zone of the RBI, the wholesale inflation (WPI) was up at 5.13%. The WPI inflation was largely driven by higher prices of fuel and higher food prices driven by a more liberal MSP regime. In the past, it has been observed that the WPI inflation tends to act as a lead indicator for the actual level of CPI inflation in subsequent months. Higher CPI could eventually have policy implications as the RBI interest rate policy is guided by that.
Two BFSI numbers were fundamentally positive. Indiabulls Housing reported 21% jump in Q2 profits at Rs.1044 crore. This should come as a relief for the markets after the stock had got battered in the HFC sell-off. Total revenues also showed a growth of more than 20% for the quarter on the back of robust loan bookings. The company also announced that home sales in its core mid-income group apartments were showing an upward trend and lower inventory. IndusInd Bank profits were up by just 5% in Q2. The main reason for missing estimates in the quarter was because it had made contingent provisions against its exposure to IL&FS group. Without the contingent provisions, the profit growth would have been 25%, which is at par with its normal growth. Gross NPAs improved from 1.15% to 1.09%.
PNB has set out on its asset monetization program. It is likely to raise Rs.8600 crore through the sale of non-core assets. Among the various assets, PNB will also be selling part of its stake in PNB Housing Finance. The company has already sold some of its real estate properties and has raised Rs.400 crore till date. PNB is left holding the Nirav Modi legacy of $2 billion after some unscrupulous PNB employees had forged Letters of Comfort to group companies of Nirav Modi. RBI had asked PNB to first monetize its physical assets and its stake in subsidiaries before seeking any help from the government.
