Nifty gained 40 basis points on Tuesday

Nifty gained 40 basis points on Tuesday to close at a record level of 11,738. While metal counters like Hindalco and Vedanta continued to aid the rally, the late thrust came from heavyweights like Reliance Industries and Maruti. The A/D ratio was skewed in favour of the declines in the ratio of 2:3. The Indian rupee strengthened by a marginal 8 basis points as it closed the day at 70.11/$. The pressure of a weak Turkish Lira and the higher trade deficit and CAD continued to weigh on the INR. The positive FDI numbers for the first quarter did hold up the INR a little bit, which explains the strength.

Trump is finally on the verge of officially breaking up the NAFTA and is in favour of a new trade deal with Mexico in lieu of NAFTA. The biggest change is likely to be with respect to autos which accounts for a trade deficit of $69 billion with Mexico. The US wants to ensure that the domestic component is increased to 75% and the labour is subject to minimum wage payments as per US standards. One of the major objections that Trump had to the NAFTA deal was that it was overly favoured of the Southern country, which Trump seeks to reverse. Mexico is more intent on keeping Trump in good humour.

On a day when Vedanta won 41 of the 55 open acreage auctions of oil fields, Brent Crude touches 7-week high of $76.68/bbl. The crude prices went up sharply in the last 2 days after OPEC disclosed that the OPEC members had cut production by 9% more than the stipulated target. There are fears that Iran sanctions may further reduce the supply of crude in the market, which explains the strength in oil prices. Although the government wanted to use these auctions to reduce its dependence on imported oil, neither ONGC nor Oil India showed too much enthusiasm in bidding aggressively.

Finally, there was some respite for Jet Airways as it bounced back from intraday lows on cost cutting hopes. The market reacted positively to Jet’s decision to cut its costs by Rs.2000 crore over the next 2 years. The stock jumped nearly 5% from its lows but still closed below the Rs.295 mark. The bigger challenge for Jet will be reducing its Cost per average seat kilometre (CASK) to Indigo’s levels. More so, considering that the problem of higher fuel prices and pricing competition is likely to remain. Jet Airways may need to substantially shift into a no-frills model to keep the business model sustainable.

The one group of people who are likely to be hit the most by the merger of Flipkart into Wal-Mart will be the national trader’s lobby. It was, therefore, hardly surprising that the Trader’s body filed a petition in NCLAT against CCI approval of Wal-Mart Flipkart merger. The Confederation of All India Traders (CAIT) has prayed to the NCLAT to reverse the CCI decision to approve the mega merger of Flipkart. The CAIT fears a major vertical integration in the retail market and that could put a lot of small and medium retailers out of business. The trader community is not only economically powerful but also a strong political rallying point. In the 2014 elections, this group had strongly rallied behind the ruling NDA and the government will be keen not to lose out on them. Retail is essentially nationally sensitive.

There is good news for consumption stocks, especially in the two wheelers, auto, consumer durables and the FMCG space. Nielsen India expects consumption thrust to drive double-digit growth in FMCG. One of the leading market research firms, Nielsen India, projects 12-13% growth for FMCG companies on the back of a big thrust in rural and urban consumption. FMCG companies are already among the clear outperformers in the stock market since the beginning of 2018. This would mean that the consumption boom in the Indian market is likely to continue for quite some time to come.

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