Had it not been for TCS, the Nifty would have ended deep in the red on Wednesday. If TCS weight on the Nifty was more than its 4.3% based on free float, the Nifty would have really spurted. Nifty ended flat, aided by a 5% rally in TCS. The TCS stock reacted to the stellar growth numbers in top-line and bottom-line on Tuesday. The sharp recovery in BFSI boosted the stock price closer to the Rs.2000 mark. TCS not only built its digital franchise but has now widened its valuation gap over Nifty to over 10X. The BFSI recovery for TCS could be the big and salivating story for the IT sector in this quarter.
Global markets across Europe were jittery as Trump threatened to deepen the trade conflict with China. Wall Street and global markets slide on trade war fears. The trade war talks were back after the US threatened to bring nearly $200 billion worth of Chinese goods under the penal tariff regime. China has promised to retaliate with equal ferocity. The big worry for emerging markets like India and the rest of Asia is that if the Yuan starts weakening then the impact on domestic currencies could be quite steep. For the first time, we are seeing some powerful nations actually ganging up against the US.
The iconic Templeton investor continues to be bullish on emerging markets, albeit after another round of correction. Mark Mobius sees the trade war as a precursor to a financial crisis. Mobius is broadly hinting at an overall correction of up to 10% or more in emerging markets from current levels, which would make these markets attractive. However, Mobius continues to remain bullish on EM equities. Mobius believes that the growth traction in these EMs is strong enough to justify the current valuations in countries like India, where there have been constant worries over valuation levels.
It seems to be the return of the dour and insipid FMCG stocks. It could be a combination of higher rural demand, urban traction, lesser price competition and the salutary effects of the GST implementation. NSE FMCG Index touched an all-time high on Wednesday. The FMCG index is up 11% on year-to-date basis. This number masks the stellar returns of HUVR, Godrej and Britannia as the tepid ITC has the largest weightage in the Nifty index. Had it not been for ITC, the actually FMCG outperformance could have been much more pronounced. FMCG stocks like HUVR and Britannia continue to outperform.
It is again back to the economics of oil after the US saw a sharp drawdown in its oil reserves. In the meanwhile, OPEC warned of return of oil surplus next year after the OPEC was constrained to increase its production under pressure from the US. OPEC has opined that the growth in oil demand in 2019 may not keep pace with the rise in supply putting downward pressure on oil prices. Brent crude prices fell by 2% to $77/bbl. In fact Brent prices had corrected sharply after touching the $80/bbl mark but worries over production constraints had again taken the production up. A combination of the Norway oil workers strike, Iran sanctions and production disruptions in Libya, Nigeria and Venezuela are taking its toll on the price of crude oil. Oil trades continue to be bullish on oil prices getting closer to $100/bbl.
Asian markets have not been spared the fury of FII outflows but India sees worst foreign fund outflows in the Asian region. Indian equities saw FII outflows to the tune of $6.9 billion in the first 6 months, making it the worst Asian nation in terms of outflows. Malaysia, Indonesia and Thailand were also badly hit by outflows. All these economies have faced the brunt of a worsening trade war and are worried over a likely Yuan devaluation. Interestingly, the Philippines are the only Asian mid-tier country which actually saw net inflows in the first six months of the current calendar year.
