Markets In Consolidation Mode, Waiting For Triggers
Bulls seem to be taking a breather even as the markets entered 2019, while the market benchmarks BSE Sensex and NSE Nifty broke the psychological marks of 36,000 and 11,000, respectively. Nevertheless, the week gone by brought some cheerful news for the banking sector. In this week, RBI came up with its financial stability report which speaks about the state of the country’s economy and the banking sector. In this report, the central bank stated that the asset quality of banks during the first-half of FY2018-19 improved as the GNPA (Gross Non-Performing Asset) ratio of SCBs dipped to 10.8 per cent in September 2018 from 11.5 per cent in March 2018. Also, RBI’s baseline forecasts suggest that GNPA is likely to improve further to 10.2 per cent by September 2019.
On the other hand, the central bank announced a one-time restructuring scheme for certain small borrowers applicable on loans not exceeding Rs 25 crore and can be implemented by banks and non-bank lenders. This move of the RBI is likely to positively affect the banks and NBFCs having exposure to the SME sector.
Meanwhile, India’s manufacturing PMI for the month of December came in at 53.2 as against 54 in the preceding month. This indicates that India’s manufacturing activity grew at a slower pace, which was due to decrease in the growth of new orders and output, even though factories cut their prices. However, PMI numbers above 50 indicates expansion of the manufacturing sector compared to the previous month, while PMI below 50 indicates contraction.
Auto sales for December were disappointing as higher ownership cost of vehicles continue to weigh on the auto industry. Presently, automobile dealers are holding large inventories with them, which has led to higher discount for vehicles, but despite offering such discount, the auto companies failed to lure customers. Passenger vehicle space continues to report disappointing sales numbers, mainly due to drop in sales of small cars as consumers demand for these cars are elastic in nature. In terms of two-wheelers, it was a mixed bag, as market leader Hero’s sales declined, while Bajaj with its aggressive strategy continues to post stellar sales numbers. Apart from the weak consumer sentiments, the liquidity crunch added fuel to the fire. The liquidity crunch is a big setback for commercial vehicle sales as major sales happen through NBFCs. Bajaj and TVS Motors, which mainly account for a lion’s share in three-wheeler space, witnessed their sales dropping in the domestic market.
Talking of global economics, from the start of 2019, OPEC and other major oil producers, including Russia, will cut production by 1.2 million bpd. However, it seems that Saudi has lowered its production before the scheduled production cut as its exports dipped by around half a million bpd in the month of December.
Even though the global growth has slowed, India seems to be better placed to continue its growth trajectory because the Indian economy is majorly dependent on domestic consumption and only around 18 per cent of Indian GDP can be attributed to exports. Going forward, the key things that would be on investors' radar are general elections, real rate of interest amid the current low inflation scenario, liquidity situation, etc. Every economy passes through various cycles, thus, it is important to identify where we stand in the cycle and take action accordingly. Seth Klarman has rightly said of the stock market: “The stock market is the story of cycles and of the human behaviour that is responsible for over-reactions in both directions.”
