Indian hope and Chinese scope

Mar 07, 2016, 08:36 IST | Alex K Mathews

The budget here that put the focus on rural India and the rate cut by Bank of China were the big finance happenings

The domestic markets saw a huge rally last week. There were also positive movements on the global front that supported the markets. Sensex and Nifty were seen closing up around 6.4 per cent and 6.5 per cent respectively.

Nifty has resistance at 7570, 7653 and 7676.

The main event for the Indian markets was the budget. The focus will be on the rural sector, infrastructure and the recapitalisation of banks. The fiscal deficit for FY 2016-17 targeted at 3.5 per cent is a positive cue for the markets.

Tiananmen Square (in the background) was the venue for China’s political discussion on the economy, tumultuous markets and currency
Tiananmen Square (in the background) was the venue for China’s political discussion on the economy, tumultuous markets and currency

The P-notes fell to a 16 month low on the back of weak domestic and global markets. According to the data available from SEBI, P-notes investment to the country stood at Rs 2.31 lakh crore in January. According to SEBI, the total value of P-notes investment in the Indian markets (equity, debt and derivatives) has been falling since October and it was at Rs 231317 crore from Rs 235534 crore last month. The January figure was the lowest level since September 2014, when the cumulative value of investment was at Rs 2.22 lakh crore.

In the last week, manufacturing data came out which expanded for a second consecutive month in February. Nikkei India manufacturing PMI was unchanged at 51.1 in the month under review as against the previous month’s level. A reading above 50 shows expansion and below shows a contraction. The reasons were the improved new orders, exports and output. The incoming orders expanded at a fast pace in five months in February, with the sub-index rising to 52.3 from 51.7.

The industries which include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity has a weightage of 38 per cent in IIP. The data was 2.3 per cent in the same period last year. Coal and cement grew by 9.1 per cent and 9 per cent respectively whereas the electricity generation and refinery production grew by 6 per cent and 4.8 per cent respectively.

The central bank has allowed an easier capital allocation for banks, which may release an equivalent of as much as R 40000 crore which can be treated as equity capital. Reserve Bank of India (RBI) allowed some items on the bank’s balance sheets mainly the reserves linked to their property holdings to be included in the Tier- 1, or core capital of banks.

According to RBI sources, an amount of Rs 30,000 to 35000 crore will be unlocked for PSBs and up to Rs 5000 crore for private banks by the move. According to new Basel- III norms, which will start from March 2019, the Indian banks need to maintain a minimum capital adequacy ration of 9 per cent in addition to a capital conservation buffer, which would be in the form of common equity at 2.5 per cent of the risk weighted assets.

The International Monetary Fund (IMF) being bullish on India projected the country’s growth rate to 7.3 per cent which will rise further to 7.5 per cent in the next year. According to them, the government has made a positive move by targeting inflation, subsidies, land and labour market reforms. The agency projections are lower than the government’s estimate of 7.6 per cent growth in 2015-16, while the RBI’s growth projection was at 7.4 per cent this fiscal. According to IMF’s estimation the growth was at 7.3 per cent in the fiscal 2014-15.

The first major news on the global front was that the Chinese central bank cut its reserve requirement ratio by 50 basis which was positive in the markets. But rating agency Moody’s investors services lowered its outlook on China’s credit rating from stable to negative, which was a big blow to the markets. But the oversold conditions helped the markets to rise.

Current account data, manufacturing and industrial production will be in focus for the Indian markets in this week.

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