Short Market Update: Nifty and Sensex saw minor gains, weak IIP data can lead to GDP growth rate cuts, low retail and wholesale inflation set the stage for rate cuts by RBI, new pay rules for bank CEO’s by RBI, Finance Ministry and RBI to relax PCA norms, a new investor for Ola.
The market started off with a small loss on Monday, 14th January 2019. This was followed by a rally on Tuesday mainly due to low inflation figures and an expectation of rate cuts in the next monetary policy. The week saw a rally of bulls and Nifty50 ended with small gains of 1.04% Even though the market started off on a sober note small gains were witnessed at the end of the week. On Friday, markets ended flat, with BSE Sensex up 12.53 points or 0.03% and closed at Rs 36,386.61, and NSE Nifty up 1.75 points or 0.02% at Rs 10,906.95. BSE Midcap down by 118.94 points or 0.79% and closed at Rs 15,023.39. And, BSE Small Cap down 106.92 points or 0.73% and ended at Rs 14,504.60.
This week, Sensex rose by 273.34 points or 1.05% and closed at Rs 36,386.61, while Nifty was up 99 points or 1.04%, and closed at Rs 10,906.95.
The rupee depreciated 1.187% (Rs 0.84) against the dollar during the week.
Weak IIP Data: Slowest one-year growth since June 2017
Index of Industrial Production (IIP) which measures the factory output/ economic activity in India saw a growth of 0.5% compared to November 2017 levels. The IIP fell to 17-month low due to contraction in the manufacturing sector, particularly consumer and capital goods. During the April-November 2018 period, the industrial output grew 5% when compared to 3.2% in the same period last fiscal year. Since the consumer durables and capital goods simultaneously, one of the main contributors to GDP, the GDP estimates will see a further downward revision.
Retail and Wholesale inflation at multi-month low
Central Statistics Office (CSO) and Department of Industrial Policy and Promotion released the December numbers for retail and wholesale price index respectively. The CPI is at 18-month low at 2.19% against 2.33% a month before. The WPI decelerated to 8-month low of 3.8% from 4.64% in the previous month. The slide in CPI can be attributed to falling food prices. Whereas, the low WPI can be attributed to low fuel prices and falling prices of manufactured items. A rate cut can be expected in February in the monetary policy meeting. Slower than expected economic growth projection and a gentle inflation scenario may force RBI to change its stance and cut rates to support growth.
RBI to frame new ‘pay’ rules for CEO’s
RBI is working on a framework to pay bank CEO. Their remuneration will be linked to parameters like balance sheet size, loan delinquency, profits and governance record. This proposed framework will provide a broad framework for the board of directors of a bank while approving an increase in salary, performance bonus, and stock options.
RBI and Finance Ministry to relax PCA norms
The RBI and Finance ministry is expected to relax prompt corrective action (PCA) norms for some banks. This will be available to only those lenders (banks) who have shown some improvement in addressing bad loans. As of now 11 state-run banks and one private bank is under the PCA norms. These norms prevent them from risky lending, expanding more branches and other norms until they recover.
Sachin Bansal invest Rs 150Cr in Ola
The co-founder of Flipkart, Sachin Bansal, invests Rs 150Cr ($21 million) in Ola. He gets 70,588 shares at Rs 21,250 per share. After the latest investment Ola is valued at $5.7 Billion. Sachin Bansal’s investment comes as a first tranche in the anticipated $100 million investment. His current ownership stands at 0.37%. Earlier in Jan, Ola raised $74 million from an existing investor Steadview Capital.