Hike in consumption, reforms propel markets (Weekly Review)

Strong global cues, clarity on a US rate hike, hopes of further reforms and prospects of consumption-led demand triggered a relief rally at the Indian equities markets during the just-concluded weekly trade.

The relief rally helped the key bellwether indices of the Indian equity markets break three consecutive weeks of losing streak and gain over 1.00 percent each.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE), gained 257.96 points or 1.00 percent to 25,868.49 points from its previous weekly close at 25,610.53 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) rose during the weekly trade ended November 20. It ended higher by 94.3 points or 1.21 percent to 7,856.55 points.

Vaibhav Agarwal, vice president and research head at Angel Broking told IANS that strong global cues on the back of a strengthening in US economy supported the Indian markets.

"The minutes of the October federal reserve policy meet suggesting a likely rate hike in December, reflected confidence in the US economy to sustain a rate hike resulted in strong global cues," Agarwal said.

Nevertheless, in the short term, higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.

Agarwal added that even the recent reforms measures supported the equity markets upward trajectory.

On Wednesday, the union cabinet, headed by Prime Minister Narendra Modi, was in an overdrive mode, as it approved 27 decisions -- including some key ones such as divestment of equity in Coal India and direct subsidy for cane farmers.

These decisions signalled continuation of economic reforms and closely followed an official note issued last week, in which foreign equity norms were relaxed in some 16 sectors.

Furthermore, attractive stock prices, and interest subvention scheme for exporters brought back investors.

Besides reforms, the prospects of a consumption-led growth in demand, after a key panel recommended major salary and pension hike for central government employees, buoyed Indian equity markets.

"A silver lining was the news on seventh pay commission report submitted to the government. This was a positive development for consumption driven sectors such as automobiles and consumer durables," Pankaj Sharma, head of equities for Equirus Securities, told IANS.

The 7th Pay commission on Thursday recommended a 16 percent hike in salary and 24 percent raise in pension for central government employees.

The pay panel proposal will entail an outflow of Rs.102,100 crore from the exchequer during the next fiscal.

Other than growth, the government's efforts to reach out to the opposition before the crucial winter session to get the Goods and Services Tax (GST) bill passed cheered the equity markets.

"Indian indices registered gains aided by hopes of some amendments on GST bill," said Gaurav Jain, a director with Hem Securities.

The Indian equity markets are hopeful that the central government will be able to form a consensus on GST ahead of the winter session of parliament that begins from next week.

Sector-wise, banking stocks succumbed to profit booking after attracting a lot buying interest at the beginning of the week.

"Energy stocks traded lower, as well as selling pressure was further exacerbated after commodity prices slumped to fresh multi year lows on worries that a slower global growth may worsen a supply gut," said Brijesh Ved, senior portfolio manager, equities, BNP Paribas AMC.

"Auto, metal and pharma stocks were fairly stable with the respective indices trading in a narrow range during the week."

Nevertheless, both the bellwether indices were dented by continued selling pressure by foreign portfolio investors (FPIs) during the week under review.

"Continued selling pressure by FPIs and intensifying geopolitical worries capped the gains," Jain added.

The data with stock exchanges showed that the FPIs sold stocks worth Rs.2,749.44 crore in the period under review.

The data with the National Securities Depository Limited (NSDL), showed that the FPIs (Foreign Portfolio Investors) sold Rs.5,459.41 crore or $825.49 million in equity and debt markets from November 16-20.

Notwithstanding, broader markets outperformed as midcap and smallcap indices witnessed a rise of two percent each during the week under review.