Markets Go Through Another Shakedown

Markets Go Through Another Shakedown

The US Federal Reserve launched its much-awaited Main Street Lending program to help the economy to cope with the strains caused by the pandemic offering up to USD 600 billion in loans.

Over the last few weeks, China reported an increase in new infected corona virus cases in the city of Beijing. This further led towards lockdown being implemented in Beijing as well as suspending schools. Alongside, a rise in number of new cases being reported in the US was also reported. As a result of this fresh wave, global investors’ sentiments were tampered with concerns, thus creating a negative impact for the global economy once more. During the fortnight, Shanghai index gained by mere 0.35 per cent owing to weaker investor sentiments over rise in the country’s geo-political tensions with India and also because the Chinese government re-imposed travel bans in the country following the resurgence in cases of new corona virus. Despite the situation, Hong Kong remains very optimistic that China will be able to control the spread of new infections as it successfully did with the first wave, leading to the Hang Seng index rising by 1.45 per cent.

Bank of Japan left the key lending rate unchanged and maintained its yield curve control and quantitative easing program, further expecting the economy to positively recover from the ongoing slump leading to Japan’s Nikkei index gaining by 1.15 per cent in the last few weeks.

US Federal Reserve projected that the economy will shrink by about 6.5 per cent in 2020. Since this low-spirited outlook challenged the market’s existing optimism about positive recovery of global economy, on June 11, NASDAQ dipped by 5.27 per cent while DJIA tanked by 6.90 per cent.

Recently, however, the US Federal Reserve launched its much-awaited Main Street Lending program to help the economy to cope with the strains caused by the pandemic. The programme offers up to USD 600 billion in loans through participating financial institutions to US businesses having up to 15,000 employees or with revenues up to USD 5 billion. Thus, with an objective of supporting small and medium-sized businesses, the programme is mainly targeted at companies previously in good shape before the pandemic but now in need of financing. As a result of the announcement, US indices such as NASDAQ, DJIA and S&P 500 recovered gaining by 2.99 per cent, 2.13 per cent and 1.43 per cent respectively during the fortnight. Taking cues from global indices, European indices such as FTSE 100, DAX and CAC 40 rose by 0.36 per cent, 2.45 per cent and 1.92 per cent respectively for the same period.

As an increase in India VIX was seen, volatility remained in the domestic markets as well since the indices fluctuated between gains and losses with a change in global environment. The optimism of investors in domestic markets was hindered with escalation in tensions between in India and China. On June 16, a sharp fall in Sensex was seen during its trading session as morning gains of more than 800 points were erased when news broke about Indian soldiers killed in Galwan Valley in eastern Ladakh during a violent face-off with the Chinese troops. With building fears, a decrease in Sensex and Nifty both by 0.65 per cent was seen for the fortnight.

As an increase in India VIX was seen, volatility remained in the domestic markets as well since the indices fluctuated between gains and losses with a change in global environment. 

The broader markets outperformed the domestic benchmark indices as the Small-Cap index gained by 3.69 per cent while the Mid-Cap index rose by 1.61 per cent during the fortnight. Selling pressure was seen in the FMCG index as it fell by 2.56 per cent while profit booking and short selling was experienced in the Bankex which was down by 2.07 per cent. Other sectoral indices, indices such as Power, Auto and Metal fell by 2.13 per cent, 0.36 per cent and 0.25 per cent respectively whereas Healthcare index rose by 2.01 per cent. Realty index gained by 0.78 per cent and IT index witnessed a mere increase of 0.04 per cent during the fortnight.

Reliance Industries (RIL) has been in the spotlight during the fortnight as the company has so far raised Rs 1.04 lakh crore by selling equity stake in its digital telecommunications arm Jio Platforms to leading global investors, including Mark Zuckerburg’s Facebook and another Rs 53,124 crore from a rights issue, along with proceeds from Tower InvIT sale to Brookfield and consortium. Trading data showed that FIIs were net buyers to the tune of Rs 19,467.65 crore while DIIs were net buyers as well to the tune of Rs 697.07 crore.

Owing to border tension with China, Indian currency witnessed a slip against the US dollar. On June 17, the rupee fell to 76.24 against the US dollar at the day’s low as compared to previous close of 76.03. Despite increase in crude oil inventories, improving economic recovery and cut in production supply of crude oil led to increase in Brent crude prices by 4.39 per cent from USD 39.57 per barrel to USD 41.31 during the fortnight and WTI crude price rose by 4.61 per cent to USD 38.51 per barrel from USD 36.81 per barrel during the fortnight. Gold prices remain bullish with an increase of 1.05 per cent to Rs 49,305 for 10 grams of 24 carat in the last 15 days.

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