CHINA TO DOMINATE THE MARKET

The domestic market tried to recover from the setback over the special investigation team’s (SIT) recommendations on investments in Indian markets through Mauritius and participatory notes (P-notes). In order to curtail the black money, the SIT recommended that the regulator SEBI should have information of the final beneficial owners of P-notes and other offshore derivative instruments. However, the party did not last for more time as the equity market across the globe became bearish during the last week as the markets had shaken by surprise devaluation of Chinese currency yuan by its government.

The emerging market troubled with the economic slowdown, China suddenly weakened its currency in a surprise move during last fortnight. The devaluation move came with an expectation of increasing the competitive advantage of the country’s exporter by making its goods and services cheaper abroad. The Chinese government too wants to push the reforms as it aims to become one of the reserve currencies in the International Monetary Fund’s SDR (special drawing rights) group. The Chinese government continued to deploy rescue operations for the recovery of its economy. On last Tuesday, the Chinese government completed pouring huge cash into the financial system to offset capital flight after devaluing the Chinese currency Yuan. The central bank infused USD 48 billion into the China Development Bank and USD 45 billion into the Export-Import Bank of China.

Devaluation of the currency of world’s second largest economy spread nervousness across all major economies in the world. The European markets took maximum beating due to this phenomenon. The German equity barometer DAX, France equity barometer CAC 40 and United Kingdom’s equity barometer FTSE 100 slumped by 6.2, 4.3 and 3.3 per cent respectively during the last fortnight. with the improving macro economic data across the US economy and in turn increasing hopes of interest rate hike by US Fed, the US equity barometers Dow Jones, S&P 500 and NASDAQ corrected just 0.2, 0.1 and 1.6 per cent respectively, lesser compared to European markets. The domestic equity barometers too corrected marginal by almost 1 per cent over the same period. However, the Chinese meltdown affected the Indian metal companies as the China is largest consumer of the commodity. The BSE metal index slumped by more than 13 per cent during the fortnight. The yuan devaluation too depreciated the Indian rupee. The export oriented sectors such as information technology (IT) showed a good traction on the bourses. The BSE IT index surged almost 6.5 per cent during the same period contrary to other sectoral indices.

The global bearish sentiments also exaggerated in domestic markets as the monsoon session of Parliament was completely washout due to last three weeks disruption by Congress-led opposition. Further, the release of Fed minutes will be important to the Indian market since the minutes may give clues about the Fed’s rate hike at its September rates meeting. The Fed minutes and the Chinese market sentiments will give direction to the market in days ahead.