Market drops on fears US Fed may resume raising interest rates
Key benchmark indices dropped in the week ended 20 May 2016 on fears that the US central bank may resume raising interest rates in the United States as early as next month. Concerns about future foreign equity inflows triggered by tougher norms from the Securities and Exchange Board of India (Sebi) on offshore derivative instruments (ODIs) or participatory notes (P-notes) also dragged market lower. Key indices fell in three out of five sessions of the week. Investors in emerging markets, including India are worried that higher interest rates in the US will drain liquidity from emerging markets and redirect it to developed economies.
The barometer index, the S&P BSE Sensex, lost 187.67 points or 0.73% to settle at 25,301.90 in the week ended Friday, 20 May 2016. The losses for the 50-unit Nifty 50 index were higher in percentage terms than those for the Sensex. The Nifty shed 65.20 points or 0.83% to settle at 7,749.70. The BSE Mid-Cap index dropped 1.19%. The BSE Small-Cap index skidded 1.34%. The fall in both these indices was higher than the Sensex's decline in percentage terms.
Trading for the week started on a positive note as key benchmark indices settled with decent gains after what was a volatile trading session on Monday, 16 May 2016. The Sensex rose 163.66 points or 0.64% to settle at 25,653.23, its highest closing level since 12 May 2016.
Amid a divergent trend among various index constituents, the two key benchmark indices clocked modest gains on Tuesday, 17 May 2016. The Sensex rose 120.38 points or 0.47% to settle at 25,773.61, its highest closing level since 12 May 2016.
Concerns about further interest rate increases in the United States triggered small losses on the domestic bourses on Wednesday, 18 May 2016.The Sensex fell 69 points or 0.27% to settle at 25,704.61, its lowest closing level since 16 May 2016.
Fears that the US central bank may resume raising interest rates in the United States as early as next month pulled global stocks lower and Indian markets followed suit on Thursday, 19 May 2016. The Sensex lost 304.89 points or 1.19% to settle at 25,399.72, its lowest closing level since 6 May 2016.
Concerns about future foreign equity inflows triggered by tougher norms from the Securities and Exchange Board of India (Sebi) on offshore derivative instruments (ODIs) or participatory notes (P-notes) pulled Indian stocks lower on Friday, 20 May 2016. The Sensex fell 97.82 points or 0.39% to settle at 25,301.90.
From the 30-share Sensex pack, 20 stocks fell and 10 rose.
Bharat Heavy Electricals (Bhel) shed 2.81%. The company on 19 May 2016, said that it has commissioned a 250 megawatts thermal power plant in Maharashtra.
Engineering and construction major L&T shed 2.3%.
The BSE Capital Goods index shed 2.27%, underperforming the Sensex.
Adani Ports and Special Economic Zone (APSEZ) dropped 5.6%. The global credit rating firm Moody's Investors Service lowered outlook on the company's Baa3 issuer and senior unsecured rating to negative from stable. The change in APSEZ's rating outlook to negative reflects the company's lower volume growth, mainly due to lower coal volumes and an increase in capital expenditure and financial leverage compared to Moody's previous expectations. The sharp decline in coal cargo for APSEZ's ports due to reduction in coal imports by India, together with some state-owned utilities shifting their cargo to government owned ports is likely to have material impact on the growth trajectory of APSEZ, the global rating agency said. The announcement was made on 19 May 2016.
Index heavyweight and cigarette major ITC rose 3.34%. The company announced a 1:2 bonus share issue at the time of the announcement of its Q4 March 2016 results on Friday, 20 May 2016. The company's net profit rose 5.67% to Rs 2495.20 crore on 9.49% rise in total income to Rs 10580.33 crore in Q4 March 2016 over Q4 March 2015.
Bank stocks were mixed. HDFC Bank (up 0.01%) and Axis Bank (up 0.01%) gained. ICICI Bank fell 2.87%. The BSE Bankex shed 1.57%, underperforming the Sensex.
State Bank of India (SBI) slumped 7.32%. SBI on 17 May 2016, announced that it is seeking in principle sanction of the Government of India (GoI) to enter into negotiation with its 5 subsidiary banks viz. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore to acquire their businesses including assets and liabilities. The decision is purely exploratory at this stage and there is no certainty in relation to SBI completing the acquisitions, SBI said. SBI's board of directors will take a final call after evaluating all the relevant considerations. SBI also said that it is considering acquisition of Bharatiya Mahila Bank.
HDFC rose 1.2%. The company said that it will raise Rs 730 crore by way of issue of secured redeemable non-convertible debentures on private placement basis. The debentures carry a coupon rate of 8.45% and will mature on 24 July 2019. The issue will open and close on the same day on 24 May 2016. The announcement was made on 20 May 2016. The object of the issue is to augment the long-term resources of the company. The proceeds of the present issue would be utilized for financing/refinancing the housing finance business requirements of the company.
IT stocks were mixed. Wipro rose 0.68%. Designit, a global strategic design firm and a part of Wipro on 19 May 2016, announced the opening of its US headquarters in the heart of New York's Union Square. The new office will serve as a global center for Designit's product-service innovation and experience-driven design services. Wipro also announced that it has joined the partnership for New York City to mark Designit's entry into the city and commitment to growing New York as a center of innovation, particularly in design and technology.
TCS rose 0.34%. The company announced five-year partnership with Lidingoloppet, the legendary Swedish sports event, widely regarded as the world's largest cross-country race. Under the terms of the agreement, TCS will become the title sponsor and official technology partner for the event. The announcement was made on 18 May 2016.
Separately, TCS announced on 17 May 2016, that IDBI Bank's financial services arm IDBI Capital Market Services has gone operational with the securities trading and processing solution from TCS BaNCS for its online brokerage business.
Infosys fell 0.41%.
The BSE IT index shed 0.11%, outperforming the Sensex.
Auto stocks dropped. Mahindra & Mahindra (M&M) (down 1.45%), Bajaj Auto (down 2.12%), and Hero MotoCorp (down 0.89%) declined.
Tata Motors shed 1.4%. Tthe company announced on 20 May 2016 that it intends to raise Rs 300 crore from issue of non-convertible debentures (NCDs). In this regard, a meeting of a duly constituted Committee of the Board will be held on 25 May 2016.
Maruti Suzuki India (MSIL) rose 2.66%. The car major announced on 19 May 2016 that it will undertake a service campaign to inspect fault and replace a brake part in 20,427 units of its S-Cross model. These vehicles were manufactured between 20 April 2015 and 12 February 2016. This service campaign applies to both the variants of S-Cross, MSIL said. The inspection and replacement will be done free of cost for the customers, it added.
The BSE Auto index lost 0.83%, underperforming the Sensex.
State run coal miner Coal India (CIL) fell 0.78%. NTPC shed 3.01%. CIL on 16 May 2016, said that the company has signed a joint venture agreement with NTPC for setting up of a joint venture company at 50:50 shareholding basis for revival of Sindhri & Gorakhpur units of Fertiliser Corporation of India.
Pharma stocks were mixed. Dr Reddy's Laboratories rose 4.36%. Sun Pharmaceutical Industries (down 0.37%) and Cipla (down 4.52%) declined. The BSE Healthcare index shed 1.01%, underperforming the Sensex.
Shares of pharma major Lupin dropped 5.21% on concerns surrounding its Goa facility which is under the scanner of USFDA. As per reports, Lupin depends on Goa facility for about 40% of its US sales. The company reported 47.5% rise in consolidated net profit to Rs 807.10 crore on 34% growth in net sales to Rs 4091.30 crore in Q4 March 2016 over Q4 March 2015. The result was announced on 19 May 2016. The Q4 March 2016 results are not strictly comparable with Q4 March 2015 results due to the acquisition of GAVIS Pharmaceuticals LLC, USA, Novel Laboratories, Inc., USA and VGS Holdings, Inc., USA (GAVIS) with effect from 8 March 2016.
Meanwhile, expectations of further increase in US interest rates had already gained more traction after recent data showed improvement in the US economy and after minutes from the US Federal Reserve's April policy meeting showed that Fed policy setters discussed the possibility of a June rate increase if the economy continued to strengthen. The Fed released the minutes of its April policy meeting on 18 May 2016. The Federal Open Market Committee next undertakes monetary policy review on 14-15 June 2016. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.
Stock market regulator Sebi after trading hours on 19 May 2016, announced tightening the regulations for issuers and subscribers of offshore derivative instruments (ODIs) or participatory notes (P-notes) with a view to enhance the transparency and control over the issuance of ODIs. In order to bring about uniformity in the know-your client (KYC) and anti-money laundering (AML) norms, it has been decided that Indian KYC/AML norms will now be applicable to all ODI issuers. The KYC/AML norms applicable to ODI issuers will be the same as that for all other domestic investors.
Sebi also said that ODI issuers would have to identify and verify the beneficial owners in the subscriber entities, who hold in excess of the threshold that is 25% in case of a company and 15% in case of partnership firms/trusts/unincorporated bodies. The ODI issuers will have to identify and verify the persons who control the operations of these entities, Sebi said in a press release issued on 19 May 2016, after the conclusion of a meeting of the Sebi board in Mumbai. P-notes are derivative instruments issued by registered foreign portfolio investors (FPIs) to overseas investors to enable them to trade in Indian stocks without having to register with Sebi.
Henceforth, the ODI subscribers will have to seek prior permission of the original ODI issuer for transfer of ODIs. As per prevailing regulations, ODI subscribers are not required to take prior permission of the ODI issuer for transfer of ODIs to another investor offshore. The ODI issuers will have to capture the details of all intermediate transfers during the month and report the same to Sebi in the prescribed monthly report. Presently, ODIs issuers submit the details of the holder of ODIs in a monthly report to Sebi. The regulator also said that ODI issuers would have to file suspicious transaction reports with the Indian Financial Intelligence Unit on the ODIs issued by them. Besides, the ODI issuers will have to carry out reconfirmation of the ODI positions on a semi-annual basis.
According to Sebi data, the notional value of ODIs to the AUC (assets under custody) of FPIs has declined over the years from a high of 55.7% in June 2007 to 10% in March 2016.
The barometer index, the S&P BSE Sensex, lost 187.67 points or 0.73% to settle at 25,301.90 in the week ended Friday, 20 May 2016. The losses for the 50-unit Nifty 50 index were higher in percentage terms than those for the Sensex. The Nifty shed 65.20 points or 0.83% to settle at 7,749.70. The BSE Mid-Cap index dropped 1.19%. The BSE Small-Cap index skidded 1.34%. The fall in both these indices was higher than the Sensex's decline in percentage terms.
Trading for the week started on a positive note as key benchmark indices settled with decent gains after what was a volatile trading session on Monday, 16 May 2016. The Sensex rose 163.66 points or 0.64% to settle at 25,653.23, its highest closing level since 12 May 2016.
Amid a divergent trend among various index constituents, the two key benchmark indices clocked modest gains on Tuesday, 17 May 2016. The Sensex rose 120.38 points or 0.47% to settle at 25,773.61, its highest closing level since 12 May 2016.
Concerns about further interest rate increases in the United States triggered small losses on the domestic bourses on Wednesday, 18 May 2016.The Sensex fell 69 points or 0.27% to settle at 25,704.61, its lowest closing level since 16 May 2016.
Fears that the US central bank may resume raising interest rates in the United States as early as next month pulled global stocks lower and Indian markets followed suit on Thursday, 19 May 2016. The Sensex lost 304.89 points or 1.19% to settle at 25,399.72, its lowest closing level since 6 May 2016.
Concerns about future foreign equity inflows triggered by tougher norms from the Securities and Exchange Board of India (Sebi) on offshore derivative instruments (ODIs) or participatory notes (P-notes) pulled Indian stocks lower on Friday, 20 May 2016. The Sensex fell 97.82 points or 0.39% to settle at 25,301.90.
From the 30-share Sensex pack, 20 stocks fell and 10 rose.
Bharat Heavy Electricals (Bhel) shed 2.81%. The company on 19 May 2016, said that it has commissioned a 250 megawatts thermal power plant in Maharashtra.
Engineering and construction major L&T shed 2.3%.
The BSE Capital Goods index shed 2.27%, underperforming the Sensex.
Adani Ports and Special Economic Zone (APSEZ) dropped 5.6%. The global credit rating firm Moody's Investors Service lowered outlook on the company's Baa3 issuer and senior unsecured rating to negative from stable. The change in APSEZ's rating outlook to negative reflects the company's lower volume growth, mainly due to lower coal volumes and an increase in capital expenditure and financial leverage compared to Moody's previous expectations. The sharp decline in coal cargo for APSEZ's ports due to reduction in coal imports by India, together with some state-owned utilities shifting their cargo to government owned ports is likely to have material impact on the growth trajectory of APSEZ, the global rating agency said. The announcement was made on 19 May 2016.
Index heavyweight and cigarette major ITC rose 3.34%. The company announced a 1:2 bonus share issue at the time of the announcement of its Q4 March 2016 results on Friday, 20 May 2016. The company's net profit rose 5.67% to Rs 2495.20 crore on 9.49% rise in total income to Rs 10580.33 crore in Q4 March 2016 over Q4 March 2015.
Bank stocks were mixed. HDFC Bank (up 0.01%) and Axis Bank (up 0.01%) gained. ICICI Bank fell 2.87%. The BSE Bankex shed 1.57%, underperforming the Sensex.
State Bank of India (SBI) slumped 7.32%. SBI on 17 May 2016, announced that it is seeking in principle sanction of the Government of India (GoI) to enter into negotiation with its 5 subsidiary banks viz. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore to acquire their businesses including assets and liabilities. The decision is purely exploratory at this stage and there is no certainty in relation to SBI completing the acquisitions, SBI said. SBI's board of directors will take a final call after evaluating all the relevant considerations. SBI also said that it is considering acquisition of Bharatiya Mahila Bank.
HDFC rose 1.2%. The company said that it will raise Rs 730 crore by way of issue of secured redeemable non-convertible debentures on private placement basis. The debentures carry a coupon rate of 8.45% and will mature on 24 July 2019. The issue will open and close on the same day on 24 May 2016. The announcement was made on 20 May 2016. The object of the issue is to augment the long-term resources of the company. The proceeds of the present issue would be utilized for financing/refinancing the housing finance business requirements of the company.
IT stocks were mixed. Wipro rose 0.68%. Designit, a global strategic design firm and a part of Wipro on 19 May 2016, announced the opening of its US headquarters in the heart of New York's Union Square. The new office will serve as a global center for Designit's product-service innovation and experience-driven design services. Wipro also announced that it has joined the partnership for New York City to mark Designit's entry into the city and commitment to growing New York as a center of innovation, particularly in design and technology.
TCS rose 0.34%. The company announced five-year partnership with Lidingoloppet, the legendary Swedish sports event, widely regarded as the world's largest cross-country race. Under the terms of the agreement, TCS will become the title sponsor and official technology partner for the event. The announcement was made on 18 May 2016.
Separately, TCS announced on 17 May 2016, that IDBI Bank's financial services arm IDBI Capital Market Services has gone operational with the securities trading and processing solution from TCS BaNCS for its online brokerage business.
Infosys fell 0.41%.
The BSE IT index shed 0.11%, outperforming the Sensex.
Auto stocks dropped. Mahindra & Mahindra (M&M) (down 1.45%), Bajaj Auto (down 2.12%), and Hero MotoCorp (down 0.89%) declined.
Tata Motors shed 1.4%. Tthe company announced on 20 May 2016 that it intends to raise Rs 300 crore from issue of non-convertible debentures (NCDs). In this regard, a meeting of a duly constituted Committee of the Board will be held on 25 May 2016.
Maruti Suzuki India (MSIL) rose 2.66%. The car major announced on 19 May 2016 that it will undertake a service campaign to inspect fault and replace a brake part in 20,427 units of its S-Cross model. These vehicles were manufactured between 20 April 2015 and 12 February 2016. This service campaign applies to both the variants of S-Cross, MSIL said. The inspection and replacement will be done free of cost for the customers, it added.
The BSE Auto index lost 0.83%, underperforming the Sensex.
State run coal miner Coal India (CIL) fell 0.78%. NTPC shed 3.01%. CIL on 16 May 2016, said that the company has signed a joint venture agreement with NTPC for setting up of a joint venture company at 50:50 shareholding basis for revival of Sindhri & Gorakhpur units of Fertiliser Corporation of India.
Pharma stocks were mixed. Dr Reddy's Laboratories rose 4.36%. Sun Pharmaceutical Industries (down 0.37%) and Cipla (down 4.52%) declined. The BSE Healthcare index shed 1.01%, underperforming the Sensex.
Shares of pharma major Lupin dropped 5.21% on concerns surrounding its Goa facility which is under the scanner of USFDA. As per reports, Lupin depends on Goa facility for about 40% of its US sales. The company reported 47.5% rise in consolidated net profit to Rs 807.10 crore on 34% growth in net sales to Rs 4091.30 crore in Q4 March 2016 over Q4 March 2015. The result was announced on 19 May 2016. The Q4 March 2016 results are not strictly comparable with Q4 March 2015 results due to the acquisition of GAVIS Pharmaceuticals LLC, USA, Novel Laboratories, Inc., USA and VGS Holdings, Inc., USA (GAVIS) with effect from 8 March 2016.
Meanwhile, expectations of further increase in US interest rates had already gained more traction after recent data showed improvement in the US economy and after minutes from the US Federal Reserve's April policy meeting showed that Fed policy setters discussed the possibility of a June rate increase if the economy continued to strengthen. The Fed released the minutes of its April policy meeting on 18 May 2016. The Federal Open Market Committee next undertakes monetary policy review on 14-15 June 2016. The US central bank had lifted rates in December 2015 for the first time in nearly a decade.
Stock market regulator Sebi after trading hours on 19 May 2016, announced tightening the regulations for issuers and subscribers of offshore derivative instruments (ODIs) or participatory notes (P-notes) with a view to enhance the transparency and control over the issuance of ODIs. In order to bring about uniformity in the know-your client (KYC) and anti-money laundering (AML) norms, it has been decided that Indian KYC/AML norms will now be applicable to all ODI issuers. The KYC/AML norms applicable to ODI issuers will be the same as that for all other domestic investors.
Sebi also said that ODI issuers would have to identify and verify the beneficial owners in the subscriber entities, who hold in excess of the threshold that is 25% in case of a company and 15% in case of partnership firms/trusts/unincorporated bodies. The ODI issuers will have to identify and verify the persons who control the operations of these entities, Sebi said in a press release issued on 19 May 2016, after the conclusion of a meeting of the Sebi board in Mumbai. P-notes are derivative instruments issued by registered foreign portfolio investors (FPIs) to overseas investors to enable them to trade in Indian stocks without having to register with Sebi.
Henceforth, the ODI subscribers will have to seek prior permission of the original ODI issuer for transfer of ODIs. As per prevailing regulations, ODI subscribers are not required to take prior permission of the ODI issuer for transfer of ODIs to another investor offshore. The ODI issuers will have to capture the details of all intermediate transfers during the month and report the same to Sebi in the prescribed monthly report. Presently, ODIs issuers submit the details of the holder of ODIs in a monthly report to Sebi. The regulator also said that ODI issuers would have to file suspicious transaction reports with the Indian Financial Intelligence Unit on the ODIs issued by them. Besides, the ODI issuers will have to carry out reconfirmation of the ODI positions on a semi-annual basis.
According to Sebi data, the notional value of ODIs to the AUC (assets under custody) of FPIs has declined over the years from a high of 55.7% in June 2007 to 10% in March 2016.
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