Month long consolidation post strong recovery in Nov 2018 amid falling energy prices and stable rupee will capitulate after instability in global macro cues and recent election results.
Growing All-Party-Opposition, except BJP enthusiasm will have a bigger role in next year’s general elections.
Assembly elections in five states this year and general elections early next year are testing the equity market belief. After turmoil in Sep and Oct, Indian financial markets regained some strength, aided by strengthened rupee and weakened energy prices in the international markets. If we discuss about the performance of UNIDOW Industrial 44 Average, the sectoral performance (see Graph 1) shows that industrials consisting of L&T Ltd, Indigo, Concor and Havells India gained the biggest strength in the index. Main reason in all the cases, except Havells, was falling oil prices which is key constituent of their business ingredient. This will be improve the financial matrix in the third quarter, which resulted a rally in their stock prices. Financials, Consumer Discretionary are other sectors after Industrials, which gained more than 10 per cent during Nov-18 recovery.
However, Energy sector bucked the overall performance of the index and has fallen more than almost 3.5 per cent due to suspected fall in refining margins during the last quarter of the financial year.
Now, strong rupee and weak oil prices are no longer a reason for markets to cheer this month. Next important reason for markets take cues are election results. Over the next couple months, markets will test a high amount of volatility followed by new lows for this year. UI 44 Average, which tested an all time low of 880 on 26 Oct, is expected to touch again that level in Dec, if the election outcome is not in favour of the street expectations. Market participants from domestic and international podiums are expecting a medium term volatility which could perhaps give investors a negative return due to political uncertainty in the country. Opposition has gained fostering momentum especially after assembly elections leading to an all-party-coalition, except BJP. This is an another cause of nervousness between the investors which are expecting a weakest form of government if this turnout to be a winner in 2019 General Elections.
At the moment, no macroeconomic or unanticipated central bank’s monetary policy will have a greater influence on the Indian market unless the dark political clouds are set aside. We are expecting a mild downside over the next six months in the Indian equity markets for a domestic reason. However, a trade disruption due to US-China standoff will be a greater risk to the global markets, sending investors apprehensive about deploying funds in emerging markets which further risking the Indian currency to go awry in the near term.
Recent slump in DHFL shares followed by increasing risk of default and corresponding mismatch in its asset-liability creates pandemonium in the index. DHFL was to be replaced by Indiabulls Housing Finance Ltd on Monday, 12 Nov 2018.
In the aftermath of the IL&FS fiasco, shares of NBFCs have become a victim of turmoil due to Asset-Liability mismatch (ALM). UI 44 component – Dewan Housing Finance Corp Ltd (DHFL) too was not spared in the recent waterfall like crash and tumbled to multi-years low by falling more than 42% in just a single week of Sep-18. A unanimous decision was taken to remove DHFL from the UNIDOW Industrial 44 Average and include Indiabulls Housing Finance Ltd from 12 Nov, 2018. However, the entire NBFCs are facing the same fate and there is no fundamental change structure of company’s corporate governance and business prospect. Hence, it has been decided to keep DHFL in UI 44 Average for now.
Non-Banking Finance Companies (NBFC) have been targeted for an asset-liability mismatch problem, which is a result of creating a long-term asset by lending for a long period of time such as mortgage/home loans and creating a liability by borrowing through short-term approach such as Commercial Papers – seeding a liquidity problem in these companies. ALM issue has been a trigger for a fall in share prices across the board, pressing management of these companies to issue statements. However, Dewan Housing Finance Corp is on a sensitive position and might have caused a problem for it, which may take a significant time to repair this problem.
Dewan Housing Finance Corp Ltd since 19th Sep 2018:
DHFL is the only company in the UI 44 Average from “Thrifts and Mortgage” industry, which had a weightage of more than half of one per cent. Below table shows, how the fall in DHFL’s stock price since 19 Sep 2018 changed the composition properties in the index:
Oil prices, tumbling rupee (INR) and political choppiness in Karnataka and other constituencies went for by-polls confined equity markets in a rangebound territory in May 2018.
Resurgence in the Indian equity markets, in Apr-18, marred by a series of uncertainties in the domestic markets and international trades amid increasing geopolitical pull. Results of assembly polls in Karnataka state has aided additional support to the sellers to dump shares for moving back to safe heaven. India’s gross domestic product grew 7.7% in the quarter ended Mar 2018, the government said, making India the fastest growing major economy in the world. Yet, this buoyancy has failed to revive the market sentiment.
UI 44 Average traded in the negative territory throughout the month while the BSE Sensex 30 and NSE Nifty 50 outperformed marginally. HDFC Bank and HDFC, which are not the UI 44 constituent, significantly rose during the month, pushed the benchmark indices of stock exchanges higher. However, UI 44 Average, an index which shows sentiment of the Indian market, relatively exhibiting the weakness in the coming weeks.
Stock Markets in April 2018 had a spectacular performance backed by IT, Financial, Material and Consumer Staple sector. UI 44 Ordinaries surged past 1,000 for the first time after 1 Feb 2018.
Performance of global stock markets in Apr 2018 was spectacular. India’s most diversified benchmark equity index – UI 44 Average – had a stellar run in April backed by IT, Financial, Material and Consumer Staple sector.
Apr-18 was a breathtaking month for the Indian stock markets. Last two months of FY17-18 had a lackluster performance backed by new legislation in General Budget and introduction of Long-term Capital Gains Tax (LGCT) among other local and international factors. UI 44 in Apr-18 (see Graph-1) started its journey from around 940 levels on 02 Apr’18 and continued it to reclaim its starting point of 1,000.
Outstanding quarterly performances of TCS, YES Bank and other companies have fueled the rally further in the last week of the month.
A steller rally in the Indian stock market among other markets was supported by the leading factors as assessed below:
Stable economic growth and robust outlook for the first quarter of FY18-19. Other emerging economies are also witnessing a rise in economic activity, prompting investors to pump in more funds in the emerging markets.
Obliterating the risk of trade-war sparked by US and China.
New friendship engagement in the Korean peninsula has also resulted in a continuing rally.
Retail inflation looks stable due to decline in inflation in food and fuel prices. However, risk of rising commodity prices, including oil prices, are still hovering on the outlook of May-18.
Monsoon projections published by the Meteorological Department, New Delhi is giving an edge to the market for an impressive economic outlook this year.
Let’s discuss the comparison of performance between the three benchmark indices. UI 44 has outperformed the other leading major benchmark – BSE Sensex and NSE Nifty – last month. The above graph depicts the outstanding performance of UI 44 Average, which is up by more than 8 per cent after a two consecutive months of sharp declines, hitting a lifetime low of 918.96 on 23 Mar’18.
We are putting together an effort to make UNIDOW Industrial 44 Ordinaries with an up-to-the-minute performance chart for making the index more pertinent to indicate sentiment of the Indian Market and more useful for its user.
This is the announcement from the UIO that UNIDOW Industrial 44 Ordinaries, from the family of UNIDOW Industrial Ordinaries equity indexes, will become a minute-by-minute performing equity index and will be updated in every 1 minute with a 5 minutes delayed quote of stock prices trading on the Bombay Stock Exchange (BSE). UI 44 will start pre-open trading at 09:05 am till 9:21 am and continuous trading will start from 9:22 am till 3:36 pm on market trading days. Final index closing value will be published after 4:05 pm. UNIDOW Advisory Services LLP, in for UNIDOW & Company, signed an agreement with CMOTS Internet Technologies Pvt Ltd for providing 5 minutes delayed stock price feed. UIO dashboard for index management and maintenance including front-end application for end users is developed by Sudhamrit Solutions Pvt Ltd. The new UI 44 webpage is developed on Node.js and AJAX for a seamless user experience to show effective performance of UI 44 on a real-time basis. Management and routine maintenance of the equity index will be managed through the UIO Dashboard, which is developed on PHP Framework.
UNIdiCAL is a publication platform of UNIDOW & Company, where GPRO, Industrial Research & Policy, Statistics and Analytics will be available with “insights” for everyone. UNIdiCAL will be available from 26 Mar’18.