"By all these lovely tokens, September days are here, with summer's best of weather, and autumn's best of cheer."
For August, Indian stock market behaved as ordained, one year up and one year down since 2010. The benchmark index Nifty50, after a superb gain of 7.63% in July, and a flat to negative return in August of previous year, ended with a positive gain of 2.84%, repeating the performance of August 2018. Of the 21 total trading sessions in the month, there were only 4 negative trading days, with the last trading session of the month taking a deep hit, much higher than the 3 negative sessions during the month. Going into last week, on an average, 150 stocks from the BSE listed universe were crossing either their 52-week highs or all-time highs. Marred by change in SEBI regulations, Chinese incursions across the northern border and poor GDP numbers, the last day of the month saw an equity market cap erosion of ~ Rs.4.56 lakh crore.
On the coronavirus pandemic front, the situation hasn’t improved in India. We ended July with 21.56 lakh confirmed cases, 6.31 lakh active cases, 12.81 lakh recoveries and 43,498 deceased. This month witnessed acceleration cross all parameters. As I write this article, confirmed cases have crossed 41 lakh; active cases have moved up to 8.61 lakh, with recoveries racing up to 31.77 lakh and deceased standing at ~ 70,678. Rate of daily new cases crossed the 90,500 mark. The race for vaccine is still underway, with steady progress in phase 2 and phases 3 trials. Commercial availability is still some time away; till then, we have to safeguard our health, on our own.
The IndoChina stand-off hasn’t abated since the Galwan incident and attempted incursions by the Chinese have been thwarted by our brave soldiers. Indian government on its part banned PUBG and 118 other mobile applications from use in India. This is in addition to the 59 mobile applications banned earlier, during this quarter. The government is also reviewing imports from China and actively realigning the supply chains to other countries. Foreign companies are being offered incentives to set shop in India while Indian companies are being asked to become self-reliant or seek other sources of origin for their raw materials.
In other news, the Supreme Court allowed telecom companies to pay their adjusted gross revenue (AGR) dues over a period of 10 years, thereby bringing the long disputed matter hopefully to an end. Companies will have to make a 10% upfront payment by March 31 2021, and installments will commence from April 1 there onwards.
Coming back to the stock markets, on the global front, it was a good month of returns. HNX30 (of the Hanoi Stock Exchange) topped the leader board of major global indices with a 16.9% gain for the month, followed by NASDAQ at 9.9% and surprise, surprise – our own Bank Nifty giving a 9.8% return. Thailand’s SET index, Brazil’s Bovespa and Borsa Istanbul were the notable under performers.
Among the other indices, Nifty Smallcap delivered 11.5% return, with Nifty Midcap 50 giving 9.1% return, followed by Nifty Midcap 100 at 7.8%. Among the sectoral indices, Nifty Media topped the charts with a 22.4% return, followed by Nifty Metal at 12.7% and Nifty Realty at 10.8%. Nifty Pharma, IT and FMCG were the laggards, giving negative returns of 0.6% to 0.9%.
From the Nifty50 index, Zee Entertainment emerged as the ‘Stock of the Month’ with a stupendous 46.61% return, followed by the beleaguered Tata Motors with a 36.77%, the under owned JSW Steel at 22.57% and the sentiment hit IndusInd Bank at 20.33%. Only 29 stocks gave positive returns, as IT & FMCG sector stocks took a back seat this month.
On a provisional basis, in the equity cash segment, FIIs made net purchases of Rs.15,750 crore, while DIIs continued their selling spree, with net sales of 11,000 cr. This comes on the back of the Rs.10,000 crore net sales made in July. FIIs contributed positively in 18 trading sessions, while DIIs had a solitary positive contribution.
This prompted an increase of Rs.6.37 lakh crore in BSE equity market capitalization, though comparatively lesser than the Rs.12.09 lakh crore witnessed in June or the Rs.7.98 lakh crore in July.
The Rupee witnessed a notable appreciation against the dollar, rising from 74.92 at the beginning of the month to Rs.73.11, before settling at 73.26. Dollar inflows helped in fuelling rupee’s strength. RBI has explicitly indicated the need for a stronger currency to contain imported inflation. Consumer inflation is still hovering above the RBI’s mandate of 6%, marking the third quarter of high CPI inflation.
Indian foreign exchange reserves ended atUS$541.4 bn, an increase of US$6.86 bn over the last 4 weeks.
In commodities, gold cooled off a little while silver, nickel, crude oil, aluminium as well as soya bean, wheat and coffee rose, with natural gas rising by a humungous 45.8% buoyed by strong demand from natural gas fired power generators. Nickel prices rose sharply as ore output in the Philippines fell due to the pandemic.
Gold started off at Rs.53,615 (per 10 gm, 995 purity) and drifted down to Rs.51,246 by the end of the month. Gold spot prices have fallen from a high of Rs.55,922 hit on 07 Aug, while silver prices cooled off from a high of Rs.78,350 (per kg) and are currently trading at Rs.67,450 (per kg).
While this wraps up the stock and commodity markets, it’s time to unveil the other side of the story – Indian economy. The headline screamed “India GDP growth for Q1FY21 crashes to a 4 decadal low of -23.9%”. While this is true, it is not an isolated outcome. The quarter was plagued by repeated lockdowns, stifling the economic activity, with most sectors contracting barring agriculture. Construction contracted by 50.3%, trade, hotels, transport and communication contracted by 47%. Eight core industries contracted by 9.6% in July against a 12.9% contraction in June. April to July growth of the eight core industries stood at -20.5% vs. 3.2% on a year on year basis.
Fiscal deficit for Apr-July 2020 stood at Rs. 8.21 lakh crore or 103.1% of the budgeted target for FY21. According to the Centre for Monitoring Indian Economy (CMIE), nearly 5 mn salaried people lost their jobs in July 2020, taking the total number of job losses in the category to 18.9 mn despite recovery in overall employment rate.
World over, most economies witnessed dramatic contraction in GDP for the quarter but India stood out, with lower than most analyst’s estimates. China was on the other end of the spectrum, the only country in the top 25 economies to post a positive growth.
Index of Industrial Production (IIP) crashed to 16.6% in comparison to 1.3% growth on a year on year basis. Based on the current economic performance, analysts and rating agencies are forecasting a contraction of ~10% in GDP for FY21. This would remain dynamic as Indian economy progresses through unlocking in a phased manner. RBI in its FY20 annual report did mention that the road to recovery is unclear at the present time and general expectation is that the situation would normalize around Q4 of this financial year. With moratoriums ending on Aug 31, all eyes would be on the asset quality of banks and other financial institutions.
There are a few green shoots visible in certain segments. Auto sector monthly numbers, HIS Market India Services Business activity marked an uptick, while agricultural production shows considerable growth. IIP, on a month on month basis moved from -33.9% in May to -16.6% in June. GST collections for August were at Rs.86,449 crore as compared to Rs.87,422 crore in July. Vehicle registrations, E-Way bill generation, online transactions etc continue to show recovery, albeit at a slower pace. On the monsoon front, India received the 11th highest rainfall for the Jun-Jul-Aug period in the last 120 years. According to the data released by the Ministry of Agriculture and Farmers Welfare, the kharif crops in the crop year 2020-21 have been sown in 101.6 mn hectares, which is ~9% higher as compared to the same period last year.
India’s overall exports (Merchandise and Services combined) in April-July 2020-21* are estimated to be US$ 141.82 bn, exhibiting a negative growth of (-) 21.99% over the same period last year. Overall imports in April-July 2020-21* are estimated to be US$ 127.76 bn, exhibiting a negative growth of (-) 40.66% over the same period last year.
The government has capped benefits under its biggest exports’ promotion scheme at Rs.2 crore for each business, on trade done between September 1 and December 31, creating furore against the action. Benefits under the Merchandise Exports of India Scheme (MEIS) would stop from January 1, said the commerce department.
As per ministry of commerce, major commodity groups of import showing negative growth in July 2020 over the corresponding month of last year are:
The trade information for July and financial year to date stand as follows:
According to India Ratings, Indian banks may restructure loans worth Rs.8.4 lakh crore or ~7.7% of total credit in March 2020, to manage financial stress caused by the corona virus pandemic. It further added that almost 60% of Rs.8.4 lakh crore credit is already susceptible, to slip into non-performing asset (NPA) category.
While the path to economic recovery is uncertain with a lot of dynamics, stock market is on its own path, moving higher and higher each month. There have been warnings from RBI Governor and NSE Chief about the recent market rally being unfounded, and was based more on global liquidity rather than any sound economic strength. Asset prices are being driven higher by retail investors, without any cause. Hence the reaction to SEBI’s new regulations has been unsurprising.
To bring transparency in terms of handling the pledged securities and ensure the safety of investors’ securities, the capital market regulator – SEBI recently introduced new pledge/re-pledge mechanism which went live from Sep 1st 2020.Do read this circular for more information.
The month ahead: What does September hold for the stock markets?
Have you heard of the September Effect? Investopedia explains it well.
One of the historical realities of the stock market is that it typically has performed poorest during the month of September. The “Stock Trader’s Almanac” reports that, on an average, the US stock market’s three leading indices usually perform the poorest in September. Some have dubbed this annual drop-off as the "September Effect."
- Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%, while the S&P 500 has averaged a 0.5% decline during the month of September.
- The September Effect is a market anomaly, unrelated to any particular market event or news.
- The September Effect is a worldwide phenomenon; it doesn't only affect U.S. markets.
- Some analysts consider the negative market effect may be attributable to seasonal behavioral bias, as investors make portfolio changes to cash in at summer's end.
The September Effect is a market anomaly and not related to any particular market event or news. In recent years, the effect has dissipated. Over the past 25 years, for the S&P 500, the average monthly return for September is approximately -0.4%, while the median monthly return is positive.In addition, frequent large declines have not occurred in September as often as they did before 1990. One explanation is that as investors have reacted by “pre-positioning”—that is, selling stock in August.
Nifty50 hasn’t had a good track record over the last 5 years, giving a positive return only once. Will it be a repetition of last year, where investors ended up with positive returns or will it be as the earlier 4 years?
Whatever September holds for the investors, it is imperative to be cautious and vigilant for any signs of a reversal of the up move. 10,600 on the Nifty50 is proving to be a tough level to crack, having tested it a couple of times already.
Stock markets across the world are in a state of denial with regards to economy. Hope cannot fuel the rise of stock markets, forever. A time will come when ground reality takes precedence. Hence, short term investors are suggested to stay light on their stock positions, while long term investors can seek opportunities during market corrections. This is as good as a time any, to build a healthy portfolio of stronger stocks.
Till then, stay healthy and stay safe.
Happy Trading & Investing!