Nifty and Sensex showed a marginal bounce on Friday after a tough week as the indices reacted to the risk of a Chinese slowdown and the likelihood of a generous $35 billion farm rescue package. The advance/decline ratio was 2:1 on Friday, but IT remained under pressure. Q3 earnings of TCS and Infosys will start the earnings season this week. Analysts and investors will be keen to look at these numbers in the light of the dollar strength in the December quarter. The outcome of the GST meet on Sunday and the announcement of IIP numbers plus the trade war will be key data points for markets.
Mutual funds add Rs.124,000 crore (5.5%) to AUM during 2018. This growth has taken the AUM of the mutual fund industry in India to Rs.23.6 trillion as of December 2018. This is the sixth consecutive year of net MF inflows and the overall AUM has actually grown 3-fold in the last 5 years. Fund experts have attributed this growth to strong retail appetite and steady SIP flows in excess of $1 billion per month, despite the IL&FS crisis. The months of October had seen some sharp volatility in the mutual fund flows in debt funds and liquid funds as the liquidity crisis had sharpened after the IL&FS fiasco.
SEBI announced that a total of 39 stocks will exit the additional surveillance mechanism (ASM). With these 39 stocks exiting on 7th January, only 61 stocks will remain in the ASM ambit. It may be recollected that SEBI had asked exchanges to place certain volatile stocks under the additional surveillance mechanism (ASM), to curb the volatility and speculation in these stocks. The idea was to check any abnormal price movements which are not in sync with fundamentals. The ASM had been one of the key reasons for the sharp correction in mid cap and small cap stocks during the year.
Here is to the positive correlation between crude oil price and inflation. RBI research paper underlines sharp impact of crude on headline inflation. RBI research has pointed out that a $10 rise in the price of Brent Crude will push up headline inflation by 49 to 58 basis points. RBI research has also pointed out that the impact is higher when the oil price base is lower. RBI has also underlined that if the OMCs are asked to absorb this oil shock then it could push up the fiscal deficit by nearly 43 bps. If crude goes up again, the government may really find itself on the horns of a dilemma.
Foreign portfolio investors (FPI) withdrew Rs.83,000 crore from India in 2018. Total outflows of $12 billion makes it one of the worst years in the last decade since the financial crisis. The outflows were driven by rising yields worldwide, weak rupee, rising trading deficit and fears that fiscal deficit could spill over. Valuations were also a concern in many sectors. A sum of Rs.33,553 crore was withdrawn from equities while the balance was taken out of bonds. The year 2019 has started off on a tepid note and a lot will depend on how the Fed outlook for rates pans out during the year. The Fed Watch Tool is indicating a flat to dovish Fed policy during the year and that would mean that the pressure of outflows would not be too high. However, the risk off trade is what India may have to worry about.
An Indian Court has declared Vijay Mallya “Fugitive Offender” under anti-money laundering law. The court declaration makes it simpler for the government to seize Mallya’s assets in India against loans outstanding to banks. He still has Rs.12,500 crore of assets (though it not yet ascertained) which the government can confiscate. The final response to the Extradition Order is still not known but this is likely to put pressure on other economic offenders like Mehul Choksi and Nirav Modi to return and face trial. It could be a big boost for the government if it manages these extraditions ahead of the elections.
