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Us Tax Reform Woes Dent Sentiment
Sat, 16 Dec RoundUp

Global financial markets ended the week on a mixed note after concern from investors over potential obstacles to Republican's tax overhaul and a slate of policy meetings from major central banks in Europe.

In the US, uncertainty over the progress of House and Senate Republicans in finalizing tax reform legislation sparked some volatility late in the week. However, the US markets ended the week on a positive note following reports that Republicans had agreed to extend the child tax credit. The Dow Jones industrial average jumped 139 points to 24,652, a record. The S&P 500 gained 0.9% to finish at 2,676.

Major European stock indexes were generally down for the week. On Thursday, both the European Central Bank and Bank of England left interest rates unchanged. The ECB promised to hold rates low for an extended period and even maintained a pledge to provide more stimulus if needed. The decisions come a day after a US Federal Reserve meeting where the central bank announced a widely expected interest rate hike but left its rate outlook for the coming years unchanged. German and French markets were down by 0.4% and 0.9% respectively this week, while UK's FTSE was up by 1.3% over the week.

Investor sentiment in Asia was hit by concerns about tax-reform efforts in the US. Shares in China declined as investors booked profits, reacting to a hike in interest rates following a hike by the US Federal Reserve. In Japan, shares in insurance, banking and communication sectors led the market fall.

The Nikkei fell by 1.1% and closed at 22,553 whereas, China's Shanghai Composite fell 0.7% over the week.

Back home, benchmark indices in India bounced back on Friday and ended the week on a positive note on the back of the outcome of Gujarat and Himachal Pradesh exit polls. On the currency front, the Indian rupee strengthened by 30 paise to close at 64.04 against the US dollar from its previous close at 64.34. The BSE Sensex ended the week marginally higher by 0.6%.

Key World Markets During the Week

On the sectoral indices front, Auto, Consumer Durables and IT stocks led the gainers this week. On the other hand, stocks from Telecom and Realty witnessed selling pressure.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

In the news from global financial markets, the US Federal Reserve raised its interest rates by 25 basis points in its policy meet on Wednesday. This marks as the third rate hike by the Fed this year.

As per the news, the US Fed took the decision to raised interest rates on expectations that the job market will remain robust. According to the quarterly economic projections, Fed officials expected the unemployment rate will maintain at 4.1% by the end of 2017 and will further drop to 3.9% in 2018.

The Fed also raised forecast for economic outlook and noted that there are hopes that the US economy will grow 2.5% both in 2017 and 2018. This was higher than its forecasts in September which projected a 2.4% growth for 2017 and 2.1% increase for 2018. Regarding the Fed's balance sheet, the central bank confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to US$ 20 billion.

In the news from the macroeconomic front, as per a leading financial daily, inflation based on the wholesale price index (WPI) accelerated to an eight-month high of 3.9% in November. This was against the WPI of 3.6% in October. Retail inflation unexpectedly jumped to a 15-month high of 4.9% in November, and industrial production slowed to 2.2% in October.

According to data released by the commerce ministry, the rise in WPI inflation was seen mainly on account of a sharp increase in fuel and food prices. While fuel price index rose by 8.8%, food prices index rose 6.1%. The increase in food prices was led by the sharp increase in vegetable prices that rose by 60% mainly due to soaring onion prices.

As per the data published by the Reserve Bank of India (RBI), India's July-September current account deficit more than doubled from a year earlier after imports accelerated while crude prices surged.

The July-September current account deficit (CAD) widened to 1.2% of the gross domestic product, or US$7.2 billion. That was wider than the 0.6% or US$3.4 billion in the same period a year ago.

Meanwhile, the trade deficit widened to US$32.8 billion in the previous quarter from US$25.6 billion a year ago.

Reportedly, the widening of the CAD on a year-on-year basis was primarily on account of a higher trade deficit brought about by a larger increase in merchandise imports relative to exports.

In news from the economy, describing the outlook for India as largely favourable, the United Nations in its 'World Economic Situation Prospects' report, has expressed hopes that the country's Gross Domestic Product (GDP) will grow at 7.2% in the year 2018 and go up further to 7.4% in the following year.

Despite the slowdown witnessed in early 2017 and the lingering impact of demonetization policy, it has projected positive outlook for India, on the back of robust private consumption, public investment as well as ongoing structural reforms.

Besides, it showed that growth in gross fixed capital formation, which is a proxy for investment demand in the economy, has dropped to 30% in 2017, from 40% in 2010, amid subdued credit growth, low capacity utilisation in some industrial sectors and balance sheet problems in the banking sector and corporate sectors. It also explained that in this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth.

In the other news, the Asian Development Bank (ADB) lowered India's GDP forecast for the current fiscal by 0.3% to 6.7 %, attributing it to tepid growth in the first half, demonetisation and transitory challenges of tax sector reforms. It has also revised downward the gross domestic product (GDP) outlook for next fiscal beginning from March 2018 to 7.3% from 7.4% mainly due to rising global crude oil prices and soft growth in private sector investment.

Rising oil prices do not bode well for the Indian economy, because India is hugely dependent on petroleum imports. India is the world's third-largest oil consumer. And energy consumption in India is set to grow as our economy remains one of the few 'bright spots' in a slowing, aging world economy. And India could face a potent risk with a rise in crude oil prices. The ADB said that by region, South Asia will remain the fastest growing region in Asia Pacific, even after the bank cut its 2017 forecast to 6.5% from 6.7%, with India's growth outlook lowered to 6.7% from 7.0%.

ADB however, expects growth to pick up in remaining two quarters of 2017-18 as the government is implementing measures to ease compliance with the new Goods and Services Tax (GST) as well as bank recapitalisation.

Movers and Shakers During the Week
Top Gainers During the Week (BSE Group A)
Company8-Dec-1715-Dec-17Change52-wk High/Low
Unitech162026.7%110/12
SUN TV6719.7%4-Oct
DR. REDDYS LAB44752216.8%525/294
M&M6,5057,1279.6%5/1
HPCL4835258.7%565/289
Top Losers During the Week (BSE Group A)
VIDEOCON INDUSTRIES1916-17.7%110/12
HOUSING DEV. INFRA5853-7.5%102/45
OPTO CIRCUITS109-6.8%12/7
CORPORATION BANK4239-6.4%65/38
GITANJALI GEMS LTD7470-6.1%105/53

Some of the key corporate developments in the week gone by.

In the news from the FMCG sector. ITC has rolled out its largest integrated food manufacturing and logistics facility here with the first-ever 'wheat mandi' unit to procure the grain from farmers, besides other FMCG units. Reportedly, the facility spread across 0.8 million square feet and entailed an initial investment of Rs 15 billion. The facility, when operational, will create direct employment of over 2,000 people, besides indirect employment throughout the value chain.

The plant will manufacture ITC's popular food brands such as 'Aashirvaad', 'Bingo!', 'Sunfeast', 'YiPPee!' and 'B Natural', among others. Further, the facility is part of the company's plans to open 20 such food processing units pan-India with an investment of Rs 100 billion.

One shall note that ITC is investing heavily in both agriculture and food segments considering the huge potential in these two sectors. The company had earlier announced an investment of Rs 250 billion to enhance physical infrastructure and manufacturing capabilities. Besides, Kapurthala, ITC has food processing facilities in West Bengal, Assam, Pune, Mysore and Bengaluru.

Moving on to the news from the automobile sector. As per an article in a leading financial daily, Maruti Suzuki India (MSI) plans to increase prices across its models by up to 2% from January in order to partially offset the rise in input costs. The company currently sells a range of models, from hatchback Alto 800 with price starting at Rs 0.2 million to crossover S-Cross priced at Rs 1.1 million (all prices ex- showroom Delhi).

Reportedly, the company is revising prices as there has been a gradual increase in commodity prices over the past few months. According to the company, the raised cost of equipment's, parts, fuel, transportation and processing are the major reasons that compelled the company to decide in favour of the price hike. It is pertinent to mention here that the company utilizes 95% manufacturing parts through its ancillaries while only 5% are imported components. The quantum of price increase will vary based on the different models and fuel specifications.

Moving on to the news from the Cement Sector. UltraTech Cement is setting up a 3.5-million-tonne greenfield cement plant at Pali in Rajasthan for Rs 18.5 billion. This is the second greenfield project by the cement maker this year as it looks to capitalize on the government's focus on infrastructure and affordable housing. Further, this plant is being set up in one of the fastest growing markets in the country and the highest cement consuming State in the North Zone.

It will cater to the markets in Western Rajasthan where UltraTech does not have a significant presence.

With this expansion UltraTech will have a footprint across the country with 50 plant locations, along with 103 ready-mix concrete plants. Earlier, the company had announced the setting up of a 3.5-million-tonne integrated cement plant at Dhar, Madhya Pradesh at a total cost of around Rs 26 billion.

Moving on to the news from the Pharma Sector. Cadila Healthcare's wholly owned subsidiary Zydus Pharmaceuticals (USA) Inc. has received the final approval from the United States Food & Drug Administration (USFDA) to market Pramipexole Dihydrochloride Extended-Release Tablets. The drug is indicated to treat signs and symptoms of Parkinson's disease (PD).

The group also received the final approval from the USFDA to market Nitrofurantoin Capsules USP (macrocrystals), which is indicated to treat acute uncomplicated urinary tract infections. Both the drugs will be manufactured at the group's formulations manufacturing facility at Moraiya, Ahmedabad. The group now has more than 175 approvals and has so far filed over 300 ANDAs since the commencement of the filing process in FY 2003-04.

Moving on to the news from the banking sector. As per an article in Livemint, Canara Bank is planning to raise capital by selling shares to financial institutions and is looking to hire merchant bankers for the same. The bank is planning to raise up to Rs 35 billion through qualified institutional placement (QIP).

Last month, the bank's board had cleared raising capital by selling stakes in its asset management and housing finance units, either fully or partially.

Reportedly, Canara Bank is among the state-owned banks in which the government may infuse capital early. With a capital adequacy ratio of 12.45% at the end of September, Canara Bank's capital position is well above the regulatory requirement 10.25%.

And here's an update from our friends at Daily Profit Hunter...

Volatility, not victory was the state of the Nifty 50 Index this week.

On Monday, it opened the session 45 points gap up and traded up to close the session positive. Buying did not last for long as the index plunged more than 150 points for the next two days.

On Thursday, the index opened gap up and ended the session 60 points up after witnessing an intra-day fall of over 100 points. Finally, on Friday, Nifty again gapped up 94 points and ended the weekly session 0.65% higher.

Last week, we saw the index bouncing from its important support level of 10,000 - 10,100. Acting as a strong resistance on the way up, this level was expected to act as a strong support. Now the index is marching towards its life-time high with Gujarat assembly election results, to be declared early next week.

So will the election results carry the index to a new life-time high or will it act as a hindrance for it?

Let's keep a close watch on it... You can read the detailed market update here...

Nifty 50 Index Trades on a Volatile Note
Nifty 50 Index Trades on a Volatile Note

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