Friday was the day of normalization with the Nifty, rupee and the bond yields showing return to stability. The Nifty bounced by over 237 points on Friday on the back of short covering support from traders. The markets also go some boost from the RBI promising a slew of measures to stem the fall in the rupee. The worry continues to be on FIIs having sold over Rs.26,000 crore in equity and debt in October. INR gained by 75 bps to 73.571/$ while 10-year bond yields tapered to 7.98%. The bond yields tapered after SBI intervened to bail out NBFCs while rupee gained from the RBI promise of NRI deposit scheme.
The quantum and pace of FII selling has been quite staggering in October. FPIs net sold Rs.26,600 crore in equity and debt in 2 weeks of October. The sharp pullout from Indian equity and debt was triggered by the global trade war, a weak rupee and valuation concerns. While equities accounted for Rs.18,000 crore of selling, debt accounted for the balance Rs.8,600 crore. More than the quantum of the selling, it is the swiftness of the exit that has actually hit the market. IL&FS only added to the problems. FIIs had sold nearly Rs.60,000 crore between the months of April and June this year.
The situation in the Middle East may be getting a tad too complicated. Saudi Arabia threatened to retaliate against any US sanctions over journalist, Jamal Khashoggi. The Saudi threat came after Donald Trump threatened the Kingdom of Saud with sanctions following the alleged murder of journalist, Jamal Khashoggi. Turkey has alleged that Khashoggi was tortured and killed inside the Saudi Arabian embassy in Istanbul, which has become a major human rights issue. Any sanctions on Saudi Arabia could drastically alter the power equations in the Gulf, since Saudi has been a long-time US ally.
Inflation for September was a shade higher but still within comfort zone. CPI inflation for September came in at 3.77%, slightly higher than the 3.69% reported in August but RBI must take comfort that it is well below 4%. The two rate hikes in June and August and the global slowdown fears appear to have subdued inflation. Food inflation and fuel inflation were marginally up indicating that the impact of higher MSP may not be too serious for prices. Inflation continues to be a key input for the setting of the interest rates by the RBI.
Opinion polls predict Congress win in Rajasthan; close contests in other states. According to the consensus of opinion polls conducted ahead of key state elections, it appears to be veering the Congress way in Rajasthan. However, Madhya Pradesh and Chhattisgarh appear to be a closer fight between the Congress and the BJP. The state of Telangana, as per initial polls, looks likely to be swept by the ruling TRS party led by K Chandrasekhar Rao. These are pre-poll surveys and normally we have seen a lot changes on the ground once the campaigning starts in full earnest. Elections are won on swings and the party that manages the swing will be at an advantage. The markets will be watching these key elections very closely as it will give a picture of the 2019 elections and the colour of likely alliances.
In a piece of good news for industrial growth, the bank credit showed a rise of 12.51% in the fortnight to September 30th. What may be actually impressive is that this growth is much faster than the deposit growth which hints at a spurt in credit off-take. While non-food credit has shown a healthy growth, the industrial growth has just turned into positive growth of 1.9% as against negative growth in the corresponding period last year. Agricultural loans were also up by 6.6% as of September 2018. Banks have been struggling with bad loans in their books and lack of credit appetite in last few years.
