Nifty and the Sensex to scale new highs on Friday

In the midst of all the risks pertaining to global trade wars and the oil prices, the Nifty has scaled an all-time peak at 11,278 on Friday backed by ITC. Encouraging results from ITC helped the Nifty and the Sensex to scale new highs on Friday. Oil and auto companies also showed positive traction in the stock markets. When the MPC meets on August 01st, the big question will be about repo rates. Bond analysts suggest that higher inflation does open the gates for one more rate hike in this year. However, one more rate hike by the RBI is already factored in and may not make a big difference.

Reliance is back to flattering the street with its consistent performance in the first quarter ended June 2018. RIL record 18% growth in profits at a record Rs.9,459 crore for the June quarter. This is the highest ever quarterly profit recorded by RIL in a single quarter. The record profits for the quarter were largely driven by doubling of petchem profits on improved margins and a smart performance by the consumer-facing retail and telecom businesses. The company appears to be on track to make its consumer-facing businesses to contribute more than 50% to the growth of the company in the coming years.

The restructuring of Tata group under the leadership of Chandra appears to be on in full swing. Tata Sons, under Chandra, has up Rs.10,600 crore investment plans. One of the major agendas in front of Chandra was to realign the capital allocation of Tata Group based on the shareholder returns generated. Today there is an overt dependence on TCS, which needs to change. The proposed investment is likely to be made in the high growth areas of finance, defense, realty and retail units of the Tata group. Tata Sons is expected to receive Rs.16,000 crore from the TCS buyback program.

One can complain about Trump’s unilateral policies, but the fact on the ground is that the US second-quarter GDP comes in sharply higher at above 4.1%. This is much higher than what analysts had anticipated and it is now being estimated that the full year growth could cross the 3% mark. The IMF had guided for 2.9% GDP growth in the US and 3.9% growth in world GDP for this year. That is likely to be breached comfortably and it also makes a strong case to the US Federal Reserve for at least two more rate hikes in the calendar year 2018. That could be some worry for emerging markets like India.

Finally, there seems to be an affirmation that the Chinese economy is slowing sharply. If Xi Jinping’s statements at the 10th BRICS summit were any indication, the Trump tariffs are hitting them where it hurts. In a way, China finds itself in a Catch-22 situation. Early indicators hint at the further weakening of the Chinese economy in July. On the one hand, credit tightness has hit domestic business while the trade tariffs have impacted Chinese exports. A slowdown in China has larger implications as it consumes 50% of the world’s commodity output. This could have an immediate impact on the volume of global trade as well as the fortunes of emerging markets overly dependent on Chinese demand. But, the bigger concern could be China triggering a Yuan devaluation, which may force a mini-currency war across the world.

SEBI appears to have 2 major agendas on its plate now. The regulator is looking to reduce the dependence of large corporates in the banking sector. Companies with borrowings above Rs.100 crore may have to rely on bond markets for at least 25% of their needs. This was part of the Government Union Budget 2018 proposals to ease bank NPAs. In another case, SEBI is unhappy with the ratio of Direct Plans in mutual funds. SEBI had introduced Direct Plans to lower the Total Expense Ratio (TER) for MF investors. Not just retail investors but even HNIs have preferred the Regular route over Direct.

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