Markets this Month: February 2018

Highlights from the markets during the month

The BSE benchmark index and the NSE Nifty 50 fell by nearly 5% during the month. The market fall started with the announcement of the budget on February 1, 2018, whereby the government reintroduced Long Term Capital Gain (LTCG) Tax. The fall multiplied during the course of the month on account of global cues where the US Fed chair hinted on raising interest rate which could see pull out from equities to the debt market.

Mid-month, the market extended losses further when India’s second-largest public-sector bank, Punjab National Bank reported bank fraud worth USD 1.7 bn. India’s top Diamond merchant Mr. Nirav Modi who used Letter of Credit as his Modus Operandi executed one of the largest bank frauds.

Other news during the month that impacted the market are detailed as under:

• The government said sales of the first batch of electoral bonds will be during March 1-10 by State Bank of India
• The Reserve Bank of India (RBI) kept the repo rate unchanged during its Sixth Bi-monthly Monetary Policy Statement for 2017-18
• The Securities and Exchange Board of India (SEBI) eased norms for foreign portfolio investors changing local custodian
• The government tightened its rules for the removal of independent directors on corporate boards
• Retail inflation declined to 5.07% in January owing to easing prices of vegetables, fruits, and fuel components
• RBI to set up a five-member committee to look into divergences in bad-loan estimates and gaps that have resulted in repeated frauds.
• SEBI released framework for retail investors who do not get IPO allotment
• The Employee Provident Fund Organization (EPFO) reduced interest rate on Employees’ Provident Fund (EPF) to 8.55% for fiscal 2018, 10 bps cut from previous fiscal
• SEBI opened up investment in domestic market to the clients of global private banks without registration or compliance requirements

Lastly, the government released GDP data whereby India replaced China as world’s fastest growing economy with growth at 7.2% in Q3. However, the news could not bring much cheer to the market with the overall index closing in red for the month. The sentiments’ remained weak particularly due to global cues surrounding the interest rate.

Things to watch out for in March 2018 and its impact

• Global concern – Following comments from recently-appointed chairman markets have started to price in a higher interest rate path in the US which could impact firms’ costs. The chairman Powell is due to speak again which will be carefully monitored by market players.
• Government data – Government data for Industrial Product of January 2018, inflation rate of February 2018,
• War between the US and North Korea – Any action from the two economies could lead to selling pressure in Indian equities