Carnage In Global Stock Market Continues

Global stock markets were spooked again by the sell-off in the US markets. In the week gone by, the US stock markets continued to slide on growing uncertainty that the US Federal Reserve will raise interest rates faster than expected. Further strengthening bond yields in the US signal at higher rates that can push up borrowing costs, hurt corporate profits and curb economic activity. Another point of concern is a government budget proposal announced by US lawmakers, which raises spending caps thereby fanning inflation.

Dow's decline by 1,175 points on Monday was the steepest in percentage terms since August 2011, when markets dropped in the aftermath of "Black Monday" - the day Standard & Poor's downgraded its credit rating of the US. Yet again on Thursday, the Dow slumped by over 1,000 points sparking a sharp pull-back on stocks across the world markets.

Apart from the US Federal Reserve, even the Bank of England has hinted towards an uptrend in interest rates. The Bank left interest rates at 0.5% at its meeting, but said a strengthening economy meant interest rates were likely to rise sooner than the markets were expecting.

Back home, global cues weighed down and the index posted a second straight weekly fall after scaling new highs in January. BSE-Sensex ended the week on a negative note and fell 3% to 34,006 this week. Meanwhile, the BSE MidCap was up 0.4% and BSE SmallCap increased 1.8% in the past week.

Key World Markets During the Week

On the sectoral indices front, stocks from capital goods, banking and IT witnessed maximum selling pressure in the week gone by.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

In its monetary policy, the RBI kept the repo rate unchanged at 6%. With this, the policy rate stands at a seven-year low. The MPC committee had last cut the repo rate by 25 basis points in August last year. As for inflation, the RBI raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.

Notebandi and goods and service tax, two major reforms carried out by the government are gradually beginning to yield results. After November 2016, 10.1 million tax filers were added compared to an average of 6.2 million in the preceding six years. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakh, limiting the early revenue impact. As income growth pushes many of the new tax filers in time over the threshold, the revenue dividends should increase robustly.

Since the launch of Goods and Services Tax (GST), there were 9.8 million unique GST registrants, an increase of 50% compared to the previous tax regime. There has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits.

Gold imports remained weak on low demand. Provisional data from precious metals consultancy GFMS and bank dealers showed India's gold imports in January dropped to their lowest in 17 months as prices rebounded and buyers postponed purchases on expectations of import tax cuts. The fall in imports by India, the world's second-biggest consumer of gold after China, could weigh on global prices, which have risen over 7% in the past few weeks.

The telecom sector, reeling under huge debt and disruptive competition with the entry of Reliance Jio, is witnessing consolidation. Last year, Vodafone and Idea announced a merger that will create the country's biggest telecom services company. Bharti has taken over Tata Teleservices' consumer mobile services and Norway-based Telenor's Indian arm, Uninor.

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Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment ...

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