Markets Expect Government Help
Finance Minister Nirmala Sitharaman is trying to undo the harm done by the proposal of enhanced surcharge on FPIs. The minister is discussing the issue with representatives of investment banks, FPIs and the mutual fund industry.
As monsoon gripped the nation in its flurry, the Indian markets staged a comeback on hopes of a roll-back of the tax on super rich. The first two weeks of the month of August were marked by the mass exodus of foreign portfolios investors (FPIs) and supportive buying from domestic institutional investors (DIIs) swinging the market up and down. The benchmark index BSE Sensex ended the fortnight at 37,581.91, down by 0.28 per cent on Friday, August 9.
Finance Minister Nirmala Sitharaman is trying to undo the harm done by the proposal of enhanced surcharge on FPIs. The minister is discussing the issue with representatives of investment banks, FPIs and the mutual fund industry. Market participants are expecting that the government might tweak or roll-back the surcharge to revive the sentiment. Amid all these developments, the BSE Sensex dipped by 0.28 per cent, while Nifty dipped by 0.71 per cent during the fortnight. The trend was followed by a similar dip in mid-cap and small-cap stocks. The BSE Midcap index was down by 0.67 per cent and BSE Smallcap index lost more ground and dipped by 1.75 per cent. Sectorally, auto and IT indices gained more than 2 per cent and FMCG also recovered by 0.30 per cent. On the other hand, BSE Metal index was down nearly 9 per cent, echoing global slowdown and weakness in base metals. The Bankex index lost 3.27 per cent, followed by the BSE Power and Realty indices, which were down more than 2 per cent each, during the fortnight.
On the global front, the international markets sank on fears of extended Sino-US trade war and unease in the Middle-East and Hong Kong. Major US indices Dow Jones and S&P 500 dipped by more than 3 per cent, while Nasdaq dipped by 4.03 per cent, during the fortnight as the US President Donald Trump reiterated that his country will impose 10 per cent tariffs on another US$300 billion worth of Chinese goods from September 1. The Chinese currency yuan depreciated more than 7 per dollar last week, this led the US Treasury Department to designate China as a currency manipulator.
The European markets also echoed negative sentiments following the shrinking of the UK GDP numbers for the April-June period. Another contraction in the September-ended quarter will mean that the country has entered into a recession. Reacting to this data, the European indices were deep in the red. The UK’s FTSE 100 and German DAX dipped by more than 5 per cent each and the French CAC 40 dipped by 4.88 per cent, during the fortnight.
The Asian markets rued the unrest in Hong Kong as the Hang Seng dipped by 7.81 per cent, while the Japanese Nikkei dipped 4.31 per cent and the Shanghai Composite was down 5.12 per cent, during the fortnight.
Institutional investors’ trading data indicated continued sell-off by the FPIs and buying by the DIIs. The FIIs were net sellers to the tune of Rs. 8,105.15 crore, while the DIIs were net buyers to the tune of Rs. 13,267.85 crore, during the fortnight.
On expected lines, the Reserve Bank of India cut the repo rate by 35 basis points to 5.40 per cent and maintained an accommodative stance. The central bank slightly increased CPI inflation target for the second half of FY20. The uneven distribution of monsoon and the volatile crude oil prices could pose challenges for the markets, but much will depend on the measures to be announced by the government to attract investment and make Indian equities a viable option for large foreign investors. Going ahead, corporate earnings for the June quarter number, macroeconomic data and global cues will give direction to the market.
