Indian Indices End the Week on a Negative Note; Telecom Stocks Witness Losses

Fri, 4 May Closing

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After opening the day marginally lower, Indian share markets witnessed further selling pressure and ended their session on a negative note. Losses were largely seen in the telecom sector, auto sector and healthcare sector, while consumer durable stocks ended the day higher.

At the closing bell, the BSE Sensex stood lower by 188 points (down 0.5%) and the NSE Nifty closed lower by 61 points (down 0.6%). The BSE Mid Cap index ended the day down by 0.4%, while the BSE Small Cap index ended the day down by 0.3%.

Asian stock markets finished on a negative note as of the most recent closing prices. The Hang Seng was down 1.3% and the Nikkei stood lower by 0.2%.

The rupee was trading at 66.88 to the US$ at the time of writing.

In the news from banking space, as per an article in the Economic Times, bank deposit growth fell to a five-decade low in FY18.

As per the data released by the Reserve Bank of India (RBI), aggregate deposits in the banking system grew a mere 6.7% in 2017-18. This was the lowest since fiscal 1963.

The above fall in growth was seen on the back of reversal from the huge deposits collected during the demonetisation exercise together with the steady movement of savings away from bank deposits.

From the telecom space, Bharti Airtel share price was in focus today. The stock of the company witnessed buying interest on a report that the firm may raise as much as US$ 1.5 billion through stake dilution when it lists the holding company for Africa operations in early 2019.

As per the news, the money will help bolster the telecom company's efforts to stay competitive in the Indian market where Bharti just announced its first quarterly loss.

From the energy sector, ONGC share price was also in focus today, after the state-run oil major drilled record number of oil wells in the financial year gone by.

ONGC announced that it drilled 503 wells in 2017-18, which is the highest number of wells drilled in last 27 years. Among the 503 wells, 119 exploratory and 384 development wells were drilled.

In the news from global financial markets during the week, the US Federal Reserve left interest rates unchanged at 1.50-1.75% in its recently held monetary policy meet. The central bank also signaled that the gradual path of rate hikes will stay.

Note that Fed officials have indicated that they expect a total of 3 to 4 hikes in 2018. This view was reaffirmed as the central bank said that economic conditions will warrant further gradual increases in the federal funds rate.

Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

Federal Reserve Rate Hike in the Past 3 Years

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

It is also worthwhile to note that the Indian stock market has done relatively well during the last period of rate hikes by the US Fed.

Take 2003-2006 for example...

Between 2003 and 2006, the US Fed rate moved from 1% to 5.25%.

Despite this, the Sensex rose from 3,500 levels to more than 10,000 during the same period. This increase was supported by strong earnings growth.

So, in the long term, rate hikes (triggered by economic growth) have proved good for the Indian markets. In fact, earnings growth is at the heart of Tanushree's prediction of Sensex 100,000.

Market participants also closely tracked crude oil prices during the week. Prices for the commodity edged up during the end of the week as looming geopolitical risks from possible new US sanctions against Iran supported the markets.

Note that crude oil prices have been witnessing a rising trend of late. Prices have been escalating due to a pick-up in global demand coupled with supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia. Even geopolitical tensions between US, Russia, North Korea and Iran have kept prices on the boil.

Note that crude oil prices have been witnessing a rising trend of late.

However, this is not good news from India's perspective.

As we wrote in a recent edition of The 5 Minute WrapUp...

• Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
  
  Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.
  
  Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

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