Highlights from the markets during the month
Indian markets continue to witness selling pressure as the global trade war intensifies and domestic underperformance coupled with political instability risk mounts. Nifty and Sensex fell 3.6 percent during the month in line with global peers. The decline was led by small and mid-cap companies that continued to underperform during the last month of fiscal 2017.
Market sentiment was primarily dented due to rising global concerns including trade war between the US and China. The decline intensified with the US Federal Reserve (Fed) raising interest rates and maintaining its view on further hikes during the year.
On the domestic front, disappointing current account deficit and trade deficit numbers weighed on the benchmarks.
Further, political concerns also took a toll on the market when the Telugu Desam Party decided to quit the National Democratic Alliance (NDA) and moved a no-confidence motion against the government.
Sentiments also weakened with the Reserve Bank of India (RBI) barring banks from issuing Letters of Undertaking (LoUs). Other key highlights of the month are:
- India’s industrial production grew 7.5% in January 2018 as against 7.1% in December 2017
India’s retail inflation fell to a four-month low of 4.44% in February compared to 5.07% in January
- India’s current account deficit widened to 2% of GDP in the December quarter, up from 1.4% in the corresponding period a year ago
- The government extended indexation benefit to investors of unlisted firms
RBI barred banks from issuing LoUs and Letters of Comfort (LoCs) after the Nirav Modi fraudulent incident
- SEBI notified that the foreign portfolio investors (FPIs) cannot enter into a non-disclosure undertaking (NDU) with anyone
- SEBI is considering allowing interoperability of clearing houses with lowering of margin requirements. This is aimed at reducing the cost of trading while minimizing the impact of the trading halt
Things to watch out for in March 2018 and its impact
- Fiscal deficit crossed its full-year target by 14%. With proposed higher MSP (minimum support price) on farm products, rising crude oil prices and increasing house rent allowance, the fiscal deficit could increase further.
- Fed hiked interest rates by 25 basis points. It also retained its plan for three more rate hikes for the year. Any increase in interest rate could result in an outflow from Indian economy
The US government imposed tariffs on about $60bn worth Chinese imports. With China retaliating the move, it could dampen emerging market.
- China is the largest owner of US treasuries in the world. If China stops purchasing US debt securities or starts selling US treasuries, it might have a significant impact on treasury demand leading to global instability